Information Valuation and Confirmation Bias in Virtual Communities: Evidence from Stock Message Boards

Author List: Konana, Prabhudev; Gu, Bin; Kumar, Alok; Raghunathan, Rajagopal;
Information Systems Research, 2013, Volume 24, Issue 4, Page 1050-1067.
Virtual communities continue to play a greater role in social, political, and economic interactions. However, how users value information from these communities and how that affects their behavior and future expectations is not fully understood. Stock message boards provide an excellent setting to analyze these issues given the large user base and market uncertainty. Using data from 502 investor responses from a field experiment on one of the largest message board operators in South Korea, our analyses revealed that investors exhibit confirmation bias, whereby they preferentially treat messages that support their prior beliefs. This behavior is more pronounced for investors with higher perceived knowledge about the market and higher strength of belief (i.e., sentiment) toward a particular stock. We also find a negative interaction effect between the perceived knowledge and the strength of prior belief on confirmation bias. Those exhibiting confirmation bias are also more overconfident; as a result, they trade more actively and expect higher market returns than is warranted. Collectively, these results suggest that participation in virtual communities may not necessarily lead to superior financial returns.
Keywords: confirmation bias;overconfidence;investment decisions;virtual communities;stock message boards
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#258 0.130 information proximity message seeking perceived distance communication overload context geographic dispersed higher geographically task contexts recipient face-to-face temporal safe dyadic
#213 0.121 assimilation beliefs belief confirmation aggregation initial investigate observed robust particular comparative circumstances aggregated tendency factors examine stages uncertainty instead confidence
#45 0.114 community communities online members participants wikipedia social member knowledge content discussion collaboration attachment communication law virtual membership structures forms activities
#183 0.107 explanations explanation bias use kbs biases facilities cognitive making judgment decisions likely decision important prior judgments feedback types difficult lead
#51 0.099 results study research experiment experiments influence implications conducted laboratory field different indicate impact effectiveness future participants evidence test controlled involving
#30 0.093 market trading markets exchange traders trade transaction financial orders securities significant established number exchanges regulatory structures order traditional stock provides
#285 0.093 effects effect research data studies empirical information literature different interaction analysis implications findings results important set large provide using paper
#176 0.087 e-commerce value returns initiatives market study announcements stock event abnormal companies significant growth positive using methodology investments period time initiative
#284 0.080 users user new resistance likely benefits potential perspective status actual behavior recognition propose user's social associated existing base using acceptance