Do we really keep up with Joneses? Visibility bias

I was reading a paper by Cal Professor Johan Walden (GO BEARS!) about Americans lack of retirement savings. He attributes this partly to Americans being "misled by conspicuous consumption in their social networks". He states that we are able to see obvious signs of consumption (ie, new car in our neighbor's driveway) where obvious signs of saving are harder to see (take a look at your neighbor's 401k statement?!) and to that end, their consumption/ spending decisions weigh into our own spending decisions.

This is not just a theoretical exercise. "A recent estimate suggests that the gap between what US consumers are saving and what they'll need to retire is almost $3.7 trillion." In other words, keeping up with Joneses is proving to be quite costly.

The paper argues that individuals struggle to determine appropriate retirement savings due to uncertainty about future wealth, lifespan, and health, and because they rely on social cues rather than objective data. A key factor influencing savings behavior is visibility bias: people tend to observe and recall consumption activities (e.g., vacations, purchases) more than non-consumption. This leads to a biased belief that others consume heavily, encouraging overconsumption and undersaving.

The model suggests that this bias creates a self-reinforcing cycle, where visible consumption raises social norms around spending. This effect is amplified in urbanized and highly connected social networks, where individuals with more social exposure (high in-degree) consume more, further influencing others. The model provides an explanation for differences in savings rates across cultures and geographic areas.

The findings imply that increased use of electronic communication, particularly social media, exacerbates overconsumption by making others’ spending habits more visible. However, targeted policy interventions—such as making savings behaviors more visible—could counteract this bias and encourage more prudent financial behavior.

The visibility bias approach differs from other theories of overconsumption, such as present bias (which assumes people prefer immediate gratification), Veblen effects (where consumption signals wealth), and “keeping up with the Joneses” (which assumes direct utility from others’ consumption). Unlike these models, the visibility bias framework emphasizes biased belief updating due to selective observation, leading to unique predictions about social network effects and the role of disclosure in mitigating overconsumption.

I found myself puzzling over this. Do I even know my neighbors? To some extent, yes (ie., Dean/ Jane/ Michelle/ Levi/ Terry Holly/ Frank/ Colette/ Nick/ Mark/ Joann...but who are the folks at the end of the cul-de-sac?). More to the point, did I feel like I needed a new vehicle just because Dean bought a new truck? No. Actually, if anything, I have been on a huge push to get rid of stuff in the house. I have donated tons of clothes/ books/ notepads, etc. I am enjoying the clear space/ lack of clutter. Why would I want to buy more stuff?

Professor Walden notes that, "the demographics of a person's social network could naturally reduce the strength of this bias". Financially sophisticated people as well as older folks (score both for me!) tend to consume less. I agree. I honestly do not care one iota about what others are buying. I know my budget and shrinking needs. I don't need ads or neighbors to tell me what to do.

Solutions? One suggestion is publishing how people save and how much they save. Another idea, based on a study in 2020, was to give "over-consumers" information about what average consumption looks like and that seemed to reduce spending by 3%.

The trouble could be that savings information tends to be quite dry/ factual. Ads encouraging people to spend are by their very nature eye-catching. I am writing this up as the Super Bowl is happening. I am not watching the game as the Niners are not playing. I do recall though how much sales of Subway's footlong cookie soared after a Super Bowl ad about the cookie.

My feeling is that any solution to saving needs to focus on a fair, living wage. It is also critical to look at the environment a consumer lives in. For example, student loan debt makes it difficult to save for retirement regardless of the consumer desire. And yes, I suspect for some consumers there is a feeling of "spending cheers me up". That suggests a possible psychological angle. Until spending information trends can compete with a footlong cookie ad, the need to save may be a tough message to get out.