Social Finance Day

The Center for Financial Markets and Policy (CFMP) has been hosting a Global Virtual Seminar Series on Fintech every Friday since the beginning of the coronavirus pandemic. On Friday, October 16, CFMP, working in conjunction with the Ripple University Blockchain Research Initiative, was delighted to bring together scholars to present their social finance-related research for Social Finance Day.

Social Finance Day recording.

The Center for Financial Markets and Policy (CFMP) and the Ripple University Blockchain Research Initiative brought together academics to discuss research for Social Finance Day on Friday, Oct. 16. All of the research presentations related to how social interactions affect financial decisions. 

The first paper, “Echo Chambers,” presented by William Mullins, assistant professor of finance, UC San Diego Rady School of Management, studied the effects of investors’ selective exposure to confirmatory information, a phenomenon known as echo chambers, when interacting and sharing opinions with other stock traders. Mullins and the other authors, Tony Cookson, associate professor of finance, Leeds School of Business, University of Colorado at Boulder, and Joey Engelberg, professor of finance and accounting, UC San Diego Rady School of Management, used the data from an investing social network, StockTwits, to examine how the somewhat irrational behavior of confirmation bias created information silos in which the diversity of differing bullish or bearish opinions were limited to investors’ newsfeeds within the social network. Confirmation bias has been examined in situations ranging from political preference to religious ideology. However, this is one of the first papers that explores how confirmation bias affects financial investors’ decisions of choosing to consume information that aligns with their prior views. Novice and professional investors alike appear to be swayed by confirmation bias in StockTwit’s social network newsfeed analysis, which prompts the idea that many investors follow social signals rather than hard facts.  

Rather than focusing on investors, Ha Diep-Nguyen, assistant professor, Krannert School of Management, Purdue University, and Huong Dang, student, Foreign Trade University, studied how customers who borrowed money from banks in Vietnam were affected by the role of social stigma in debt repayment decisions. In their paper, Social Collateral, the authors used a randomized field experiment to see how the effects of another individual viewing a borrower’s repayment status affected whether the borrower repaid the loan. One of their major findings showed that disclosing financial debt significantly reduces the likelihood of delinquency and increases the borrowers debt repayment amounts. Consumers are highly likely to view debt and repayment loans as having negative social implications in society.  Therefore, they are more likely to repay that loan to improve society’s view of them. 

David Hirshleifer, distinguished professor of finance, University of California at Irvine, ended the event with his keynote presentation, “Social Finance: To Infinity and Beyond.” Hirschleifer defined social finance as the study of how social interaction affects economic outcomes. In his presentation, he noted that the study of social finance is a growing phenomenon that stems from behavioral finance, where the path from assumptions to conclusions are often very direct. In contrast, social finance studies the indirect effects of social interactions on behavior and assumes that attraction to a behavior does not equal a preference for it.  Also, social finance builds on the ideas of behavioral economics by adding in considerations of psychological biases and preferences to capture systematically, socially emergent, and direct effects on financial decisions. Part of Hirshleifer’s presentation was on his own research papers on folk models and social transmission bias, where he more broadly dives into the idea that people are attracted to certain preferences but may be unaware of their biases in social situations.

Presenters:

Will Mullins

Assistant Professor of Finance

UC San Diego Rady School of Management

Ha Diep-Nguyen

Assistant Professor

Krannert School of Management, Purdue University

David Hirshleifer

Distinguished Professor of Finance

Merage Chair in Business Growth

University of California at Irvine