Online Communities Lead to Risky Financial Decisions
A recent study conducted by scientists at Rice University, the University of British Columbia and the University of Zurich suggests that people who regularly participate in online communities are more likely to make risky financial decisions.
Apparently, communities can critically impact our everyday behavior beyond of what we would generally be willing to accept.
An analysis of Prosper.com and a study of 600 lenders over an 18-month period showed that active social community members had riskier loan portfolios and lent their money to borrowers with worse credit ratings than others. A study of 13,000 eBay customers revealed that online community members were comfortable with riskier bidding and ended up spending more money for items purchased. The scientists said that the willingness to take risks scales in line with the participation in online communities: The more active people are, the riskier their behavior.
Interestingly, online community members also "tend to believe" that their community will support them when they are in trouble, which is a scenario that apparently promotes risky behavior.
"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," Utpal Dholakia, professor of management at Rice University, 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."
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I do notice that I am buying more and more unnecessary computer components, upgrades and gadgets after joining THW. Am I "it"?
I do notice that I am buying more and more unnecessary computer components, upgrades and gadgets after joining THW. Am I "it"?
Yeah, me too
It goes both ways with me I save some money but I find myself looking at the more expensive pieces. All the reviews does save me a lot of time when I do custom builds.
I wonder if they controlled for age. Wouldn't Twitter/Facebook users tend to be younger and less experienced with money in general? I would describe my financial decision making 10-15 years ago as 'risky' compared to now. Just getting out on my own, I still had the expectation that my parents/other people would help me out, much more than now.
I do notice that I am buying more and more unnecessary computer components, upgrades and gadgets after joining THW. Am I "it"?
I think they are talking more about Twitter and Facebook users.
However, I don't think that "Online Communities Lead to Risky Financial Decisions". Rather that the people whom make risky financial decisions (idiots) are more likely to join these online communities and actively participate.
Along with all these other studies trying to make a causal link with Facebook and Twitter for behavioral problems. When it is more likely that people with these behavioral problems have a higher than average affinity for social networking sites.
Just like some other study I read a while back where they announced that racing games causing riskier drivers and speeders. Rather than the simpler and more logical conclusion that people whom enjoy speeding and reckless driving are far more likely to play a racing sim than those whom don't care for driving fast.
Has anyone else noticed a lot more "OMG the internetz are bad for us" stories as of late? The timing seems a bit odd, taking into consideration the recent trend of governments around the world wanting to control access to, and the content of, the internet. Just an observation.
Did the study identify an age bracket? I'm willing to "risk" that age is a factor.
Ugh. The people doing studies like these need to be hit with a big stick upon which is written "Correlation does not imply causation, dumbass!"
Has anyone else noticed a lot more "OMG the internetz are bad for us" stories as of late? The timing seems a bit odd, taking into consideration the recent trend of governments around the world wanting to control access to, and the content of, the internet. Just an observation.
I don't really see this as an, "OMG the internetz are bad for us!" story. You're assuming that the article is saying, "participating in online communities will affect your financial decisions". As Kyuuketsuki stated, correlation != causation.
I see this more as a reflection of these people's behavior. I.e. people who are more socially risky (people who are willing to put themselves out there more, and risk rejection, etc.) are also likely to be financially risky (put their money out there, and risk losing it).
It's not saying that the internet caused anything. It's saying that you can tell something about people by their behavior. Which is no big surprise.
As an addendum to my previous comment: the wording in the article is misleading to that effect.
It is true that I take into consideration the advice of other people online when considering buying/selling stocks. If the online community has a general consensus that a new major product release is a major success/failure and the stock hasn't adjusted accordingly I'd be more likely to buy/sell that stock. For example, say that right after Bulldozer came out I read the reviews and realized it was garbage (compared to expectations anyway) but AMD's stock hadn't gone down, then I would be more likely to short AMD stock. Not saying that it would be the sole factor driving me to do something (I'm more of a long term investor), but it would have SOME impact on my decision.
With almost everything purchasable with a mouse click, I can see why.
I think someone hit it on the head when they pointed out that the people who are most active and who are most involved and who make "riskier" transactions are also the most likely to be in a community in the first place.
It's like those who post on Toms are more likely to own computers and have the newest computer chips and devices. Yeah you think? Grandma who doesn't own a computer and can't program her DVR isn't going to be on Toms, she wouldn't be interested.
It’s odd to portray risky financial decisions as a bad practice which people are led into by their online associates. Risk is not necessarily a bad thing. For instance, studies on the long term survivability of pension portfolios consistently show that a considerable investment in stocks is good, though of the three asset classes stocks-bonds-cash, stocks are the riskiest. Greater risk taking is usually associated with a greater likelihood of loss, online communities may lead consumers applying for online loans to act in ways that are harmful to not only them personally.