Informative Social Interactions

Household finances are confidential and discussions are limited to a subset of peers. We collect representative survey data to examine whether interactions with inner and outer social circles influence return perceptions, expectations, and exposure to a widely known financial instrument in a developed economy with multiple information sources. Findings support the relevance of a small "financial circle". Perceived prevalence of information or participation in the financial circle improves expectation accuracy by improving accuracy of perceived past returns, and influences stock participation and exposure beyond expectations. Imitation of the outer circle, if present, is not based on return perceptions or expectations