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...these channels through which a person’s financial decisions are affected by his peers’. Identifying the causal effect of one’s peers’ behavior on one’s own is notoriously difficult (see, for example, =-=Manski, 1993-=-). Correlations in the investment or consumption choices of socially-related individuals might arise without any causal peer effect: for example, peers select into social groups according to their pre...

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...uct) by another individual; we call this social utility. Suppose an investor i considers purchasing a financial asset under uncertainty. In canonical models of herding based on social learning (e.g., =-=Banerjee, 1992-=- and Bikhchandani et al., 1992), information that a peer, investor j, purchased the asset will provide favorable information about the asset to investor i: investor j (acting in isolation) would only ...

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...al” and “normative” reasons for conformity. 2Preferences over relative consumption can arise from the (exogenous) presence of other individuals’ consumption decisions in one’s utility function, (e.g. =-=Abel, 1990-=-, Gali, 1994, Campbell and Cochrane, 1999) or can arise endogenously when one consumes scarce consumption goods, the prices of which depend on the incomes (and consumption and investment decisions) of...

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...: the impact of classmates or friends on education, compensation, and other outcomes (Sacerdote, 2001; Carrell and Hoekstra, 2010; de Giorgi et al., 2010; Duflo et al., 2011; Card and Giuliano, 2011; =-=Shue, 2012-=-); the impact of one’s peers and community on social indicators and consumption (Bertrand et al., 2000; Kling et al., 2007; Bobonis and Finan, 2009; Dahl et al., 2012; Grinblatt et al., 2008; Kuhn et ...

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...l include social preferences, as well as general equilibrium-induced differences in demand. Note also that in principle, social utility might lead to negative correlations between peers’ choices (see =-=Clark and Oswald, 1998-=-). For example, one might observe a demand for joint insurance (see, for instance, Angelucci et al., 2012). We focus here on the case of positive social utility effects, as these are predominant in th...