If your neighbor gets a new car, do you buy a new car?

Each week, the Dutch Postcode Lottery (PCL) randomly selects a postal code, and distributes cash and a new BMW to lottery participants in that code. We study the effects of these shocks on lottery winners and their neighbors. Consistent with the life-cycle hypothesis, the effects on winners’ consumption are largely confined to cars and other durables. Consistent with the theory of in-kind transfers, the vast majority of BMW winners liquidate their BMWs. We do, however, detect substantial social effects of lottery winnings: PCL nonparticipants who live next door to winners have significantly higher levels of car consumption than other nonparticipants.

Source: “The Effects of Lottery Prizes on Winners and their Neighbors: Evidence from the Dutch Postcode Lottery” from IZA Discussion Paper No. 4950, May 2010

You are very influenced by context and those around you. Your happiness is heavily influenced by those around you as well.

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