Navigating through the Crowd: How Do Features of Social Media Platforms Influence Investor Judgments?

Abstract

Technological innovations have created a significant shift in how investment information is created, disseminated, and reviewed. Social media platforms and other internet-based information intermediaries are now important sources of fundamental investment analysis for investors. We use an experiment to examine how investors use features of social media platforms—specifically, network oversight, contributor publication experience, and contributor ownership status—to assess contributor credibility and make investment judgments. Consistent with satisficing theory, we find the presence of one positive credibility cue is sufficient to increase investor perceptions of contributor credibility and willingness to invest. However, once a positive credibility cue is present, additional credibility cues have little influence on investors’ judgments. Our findings have important implications for investors, social media platforms, and regulators, providing evidence on how investors assess credibility for an important new information intermediary and when investors’ judgments are likely to be influenced.