Essays in Social Interactions and Financial Decision-Making

Abstract

This thesis contributes to the literature on social interactions and financial decision-making. The first essay builds on previous research that highlights how subjective well-being deteriorates with low financial resources by showing that financial knowledge intensifies this relationship. More specifically, the evidence suggests that the financially literate, with the skills and abilities to manage finances, are subject to disproportionate deterioration in subjective well-being levels when financially distressed. In this respect, the essay suggests for public policy to consider wider outcomes negatively influenced by financial literacy when implementing measures to increase its overall levels in society. The second essay contributes to the economics literature on social identity by highlighting the relationship between social norms and mental health. It shows that individuals with highly positive views on the welfare state and benefit recipients report a higher prevalence of mental health problems. In societies where work is valued as a normative good, and in which benefit recipients are characterised as benefit scroungers, expressing such positive welfare attitudes can constitute deviations from social norms. Theoretical analysis suggests that social sanctioning for expressing these welfare attitudes can explain this relationship and implies that policies to destigmatise welfare can improve public health. The third essay builds on evidence that rates of investment participation are generally low and inspects the role of peers. Empirical models of peer effects are used to quantify the contribution of the propensity to choose peers like oneself. Contrary to what is intuitively expected, the results indicate that the influence of peers depresses the overall participation rate. Overall, the thesis brings to light the different mechanisms that govern social interactions and illuminates new dimensions to understanding financial decision-making. The findings contribute to recent discussions on financial well-being and financial inclusion.