Information Processing: The Role of Expertise within Peer Effects

Abstract

We experimentally examine the channels underlying peer effects in financial markets. We hypothesize that individuals are uncertain about how to process informationregarding financial markets and thus look among their peers for someone who is more capable of processing the information - an expert. Our experimental evidence supportsthis hypothesis: Peers with higher relative expertise are followed more strongly. In our experiments, peers do not possess additional information to ensure that our results aredriven by the ability to process common information. We therefore introduce a new channel to the peer effects literature - information processing.

Keywords

Tags of Social Finance