Determinants of Investors’ Information Acquisition: Credibility and Confirmation

Abstract

ABSTRACT: Psychology theory suggests that current investors are unlikely to be impartial in their acquisition of information regarding a currently held position after receiving information that casts doubt on the profitability of the position. This study examines whether the favorability of initial information an investor receives subsequent to taking an investment position moderates his acquisition of additional information regarding that position. A web-based experiment indicates that participants generally choose to view information based on its credibility. However, the majority of information chosen by participants initially receiving unfavorable information supports the investment position they chose at the beginning of the case. Moreover, participants receiving unfavorable information prefer to view lower-credibility, preference-consistent information at a similar rate to higher-credibility, preference-inconsistent information. Given a psychological need to support a previous investment decision, participants forgo a certain amount of credibility in the information they gather to confirm their belief in their investment position.