Gifts are important instruments for forming bonds in interpersonal
relationships. Our study analyzes the phenomenon of gift contagion in online
groups. Gift contagion encourages social bonds of prompting further gifts; it
may also promote group interaction and solidarity. Using data on 36 million
online red packet gifts on China's social site WeChat, we leverage a natural
experimental design to identify the social contagion of gift giving in online
groups. Our natural experiment is enabled by the randomization of the gift
amount allocation algorithm on WeChat, which addresses the common challenge of
causal identifications in observational data. Our study provides evidence of
gift contagion: on average, receiving one additional dollar causes a recipient
to send 18 cents back to the group within the subsequent 24 hours. Decomposing
this effect, we find that it is mainly driven by the extensive margin -- more
recipients are triggered to send red packets. Moreover, we find that this
effect is stronger for "luckiest draw" recipients, suggesting the presence of a
group norm regarding the next red packet sender. Finally, we investigate the
moderating effects of group- and individual-level social network
characteristics on gift contagion as well as the causal impact of receiving
gifts on group network structure. Our study has implications for promoting
group dynamics and designing marketing strategies for product adoption.Comment: 33 page