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Past Issue • Apr-Jun 2014

Online Investors Beware: Good News May Not Breed Good Decisions

Human beings have an innate desire to have their views validated by others, a tendency that can have dangerous consequences when it comes to making investment decisions, argues Professor Raj Raghunathan. His studies on the information seeking behaviour of do-it-yourself online investors suggest that the propensity to search out confi rmatory information and ignore negative views can result in poor decision-making and lower return on investments.

In July of 2004, I hosted a get-together at my apartment in Austin, Texas, to watch the Democratic Party’s Presidential Convention. This was the year that George W. Bush was running for a second term as President of the United States (US) and John Kerry was the Democratic Party’s candidate. I had invited several of my friends, some of my neighbours and a couple of my colleagues from work to the get-together. We were going to watch the convention together over drinks and dinner. I had somehow assumed that all the people I had invited to my house were Democrats − I certainly was one myself − and that we’d have a gala time. As it turned out, a couple of my friends, one of my neighbours and one of my colleagues turned out to be Republicans. Even though I thought that the convention itself went well (this was the day Barack Obama, then State Senator, gave the speech that catapulted him into the limelight), the get-together at my house didn’t. The fact that some of my guests had opinions diametrically opposite mine set me on edge a bit, an edge that even a few bottles of beer couldn’t dull.

ABOUT THE AUTHORS

  • Raj-Raghunathan-feb7

    Raj Raghunathan

    Visiting faculty at the Indian School of Business and Professor in the Department of Marketing at McCombs School of Business, University of Texas at Austin.
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