People who participate in online communities are more likely to make risky financial decisions, according to a new study from researchers at Rice University, the University of British Columbia and the University of Zurich.
The study, "Does Online Community Participation Foster Risky Financial Behavior?", has been accepted for publication in the Journal of Marketing Research. Utpal Dholakia, professor of management at Rice University, Jack (Xinlei) Chen and Juliet Zhu, professors of management at the University of British Columbia and René Algesheimer, chair of marketing and market research at the University of Zurich used a series of field and laboratory studies to examine the behavior of people participating in message boards and chat rooms on the lending website Prosper.com and the auction website eBay.com.
"Emerging evidence indicates that online community participation impacts many aspects of consumer behavior, and our findings reveal that this impact extends to financial decision-making," Dholakia said.
Findings from the paper include:
On the peer-to-peer lending site Prosper.com, a study of 600 lenders conducted over an 18-month period showed that those who participated in online communities possessed riskier loan portfolios and lent their money to borrowers with worse credit ratings and greater chances of default than community nonparticipants.
In a controlled field experiment conducted with more than 13,000 eBay customers over a two-year period, those who joined the online community engaged in riskier bidding behaviors by placing more bids on each item and spending more for items they won.
Online community participants tend to believe that the community will support them in difficult situations, and this perceived support causes them to make riskier financial decisions.
The more active the participants are within the online community, the riskier their financial decisions tend to be.These effects are stronger when the main topics of conversation of the online community are related to investing/bidding issues rather than socializing.
"Participants in these sites somehow come to believe that their fellow community members will come to their aid when something goes wrong, but in reality, they are out there on their own and could suffer adverse consequences," Dholakia said. "These communities are different from social networking sites like Facebook, because the individuals involved are usually strangers whose identities are unknown to the consumer."
The study's main finding that online community participants engage in riskier decision-making is widely applicable and important, Dholakia said.
He likened it to individuals who join an online support group run by a hospital, foundation or advocacy group or members of an online adolescent club. "This may lead to patients choosing riskier treatment options or engaging in high-risk behaviors, some of which could prove detrimental," he said.
Because greater risk taking is usually associated with a greater likelihood of loss, online communities may lead consumers to act in ways that are harmful to not only them personally, Dholakia said. "If, for example, members of a discount brokerage firm's online community invest more aggressively by buying riskier stocks that perform worse than market averages, this would affect them adversely and also hurt the firm's standing and brand name," he said.
To arrange an interview with Dholakia, contact David Ruth, director of national media relations at Rice, at 713-348-6327 or email@example.com.
News video: Online interaction encourages risky financial behavior: http://www.youtube.com/watch?v=x3uTV5TTbBE
Study: "Does Online Community Participation Foster Risky Financial Behavior?" http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1926478
Utpal Dholakia bio: http://www.ruf.rice.edu/~dholakia
Located on a 300-acre forested campus in Houston, Rice University is consistently ranked among the nation's top 20 universities by U.S. News & World Report. Rice has highly respected schools of Architecture, Business, Continuing Studies, Engineering, Humanities, Music, Natural Sciences and Social Sciences and is known for its "unconventional wisdom." With 3,708 undergraduates and 2,374 graduate students, Rice's undergraduate student-to-faculty ratio is less than 6-to-1. Its residential college system builds close-knit communities and lifelong friendships, just one reason why Rice has been ranked No. 1 for best quality of life multiple times by the Princeton Review and No. 4 for "best value" among private universities by Kiplinger's Personal Finance. To read "What they're saying about Rice," go to http://www.rice.edu/nationalmedia/Rice.pdf
David Ruth | EurekAlert!
Novel study underscores microbial individuality
13.12.2019 | Bigelow Laboratory for Ocean Sciences
TU Dresden biologists examine sperm quality on the basis of their metabolism
29.11.2019 | Technische Universität Dresden
Vaccinia viruses serve as a vaccine against human smallpox and as the basis of new cancer therapies. Two studies now provide fascinating insights into their unusual propagation strategy at the atomic level.
For viruses to multiply, they usually need the support of the cells they infect. In many cases, only in their host’s nucleus can they find the machines,...
More than one hundred and fifty years have passed since the publication of James Clerk Maxwell's "A Dynamical Theory of the Electromagnetic Field" (1865). What would our lives be without this publication?
It is difficult to imagine, as this treatise revolutionized our fundamental understanding of electric fields, magnetic fields, and light. The twenty original...
In a joint experimental and theoretical work performed at the Heidelberg Max Planck Institute for Nuclear Physics, an international team of physicists detected for the first time an orbital crossing in the highly charged ion Pr⁹⁺. Optical spectra were recorded employing an electron beam ion trap and analysed with the aid of atomic structure calculations. A proposed nHz-wide transition has been identified and its energy was determined with high precision. Theory predicts a very high sensitivity to new physics and extremely low susceptibility to external perturbations for this “clock line” making it a unique candidate for proposed precision studies.
Laser spectroscopy of neutral atoms and singly charged ions has reached astonishing precision by merit of a chain of technological advances during the past...
The ability to investigate the dynamics of single particle at the nano-scale and femtosecond level remained an unfathomed dream for years. It was not until the dawn of the 21st century that nanotechnology and femtoscience gradually merged together and the first ultrafast microscopy of individual quantum dots (QDs) and molecules was accomplished.
Ultrafast microscopy studies entirely rely on detecting nanoparticles or single molecules with luminescence techniques, which require efficient emitters to...
Graphene, a two-dimensional structure made of carbon, is a material with excellent mechanical, electronic and optical properties. However, it did not seem suitable for magnetic applications. Together with international partners, Empa researchers have now succeeded in synthesizing a unique nanographene predicted in the 1970s, which conclusively demonstrates that carbon in very specific forms has magnetic properties that could permit future spintronic applications. The results have just been published in the renowned journal Nature Nanotechnology.
Depending on the shape and orientation of their edges, graphene nanostructures (also known as nanographenes) can have very different properties – for example,...
03.12.2019 | Event News
15.11.2019 | Event News
15.11.2019 | Event News
13.12.2019 | Physics and Astronomy
13.12.2019 | Physics and Astronomy
13.12.2019 | Materials Sciences