Keeping up with the Jansens: Causal Peer Effects on Household Spending, Beliefs and Happiness

Candia, Bernardo; Coibion, Olivier; Georgarakos, Dimitris; Gorodnichenko, Yuriy; van Rooij, Maarten

doi:10.26509/frbc-wp-202629

Working Paper

Keeping up with the Jansens: Causal Peer Effects on Household Spending, Beliefs and Happiness

Abstract: CORRECT ORDER OF AUTHORS: van Rooij, Coibion, Georgarakos, Candia, Gorodnichenko. How does perceived relative income affect household behavior and well-being? We use a randomized information experiment in a representative panel of Dutch households to generate exogenous variation in beliefs about peers' income. Lower perceived relative standing shifts expenditure toward durable goods but we find little evidence of an increase in total spending. Higher perceived relative income increases socializing and substantially raises happiness, while lower relative income increases subsequent employment. Relative standing also shapes views about inequality and redistribution. A complementary vignette experiment provides supporting evidence on mechanisms. Overall, peer comparisons matter for behavior and well-being even when total spending responses are small.

JEL Classification: D1; D3; D6; E21;

https://doi.org/10.26509/frbc-wp-202629