Online interaction may lead to risky financial decision-making

People who participate in online communities, which deal with lending and auctions, have greater chances of taking risky financial decisions, a new study including an Indian origin researcher has suggested.

Utpal Dholakia, Rice University, Jack (Xinlei) Chen and Juliet Zhu, University of British Columbia and René Algesheimer, University of Zurich used a series of field and laboratory studies to examine the behaviour 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 behaviour, and our findings reveal that this impact extends to financial decision-making,” Dholakia said.

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 behaviours by placing more bids on each item and spending more for items they won.

“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.”

“This may lead to patients choosing riskier treatment options or engaging in high-risk behaviors, some of which could prove detrimental,” he said.

The study has been accepted for publication in the Journal of Marketing Research.

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