Paradoxes of online investing

Testing the influence of technology on user expectancies

Clayton Arlen Looney, Joseph S Valacich, Peter A. Todd, Michael G. Morris

Research output: Contribution to journalArticle

39 Citations (Scopus)

Abstract

At an increasing rate, individual investors are taking personal control over their financial destinies by investing their money online. Compared to offline do-it-yourself approaches, evidence suggests that investors exhibit lofty expectations and perform significantly worse after going online. However, little is understood about the mechanisms fueling expectancies, the role technologies play in their formation, or how technologies shape investment decisions. Therefore, this article explores the paradoxical nature of online investing technologies, which can give rise to a heightened state of conviction in one's capability to invest successfully. Drawing on Social Cognitive Theory, the concepts of encapsulation and combination are introduced to develop a research model describing how functional and technical self-efficacy judgments independently and collectively shape and influence outcome expectancies. The results suggest that perceptions about what one can accomplish through online investing technologies can lead investors to exaggerate their capabilities, which, in turn, produces elevated expectancies of financial payoffs and nonmonetary rewards. These findings carry important implications. In tasks requiring both computing and functional skills, the principals of encapsulation and combination highlight the importance of comprehensively capturing self-efficacy beliefs across skill domain boundaries. Moreover, online investing represents a para-doxical case that challenges the traditional assumption that fostering a robust sense of efficacy represents a purely noble enterprise. In fact, strong self-efficacy beliefs can prove counterproductive, leading to severe, irreversible, and unintended consequences. Going forward, these discoveries provide a solid foundation to enhance systems designs and facilitate a deeper understanding of user psychology.

Original languageEnglish (US)
Pages (from-to)205-246
Number of pages42
JournalDecision Sciences
Volume37
Issue number2
DOIs
StatePublished - May 2006
Externally publishedYes

Fingerprint

Testing
Encapsulation
Fueling
Systems analysis
Investing
Paradox
Expectancy
Industry
Self-efficacy
Investors
Personal control
Individual investors
Investment decision
Reward
Unintended consequences
System design
Psychology
Efficacy
Social cognitive theory

Keywords

  • Electronic commerce
  • Expectancy
  • Online investing
  • Para-dox
  • Self-efficacy
  • Social cognitive theory

ASJC Scopus subject areas

  • Management of Technology and Innovation
  • Strategy and Management
  • Business, Management and Accounting(all)

Cite this

Paradoxes of online investing : Testing the influence of technology on user expectancies. / Looney, Clayton Arlen; Valacich, Joseph S; Todd, Peter A.; Morris, Michael G.

In: Decision Sciences, Vol. 37, No. 2, 05.2006, p. 205-246.

Research output: Contribution to journalArticle

Looney, Clayton Arlen ; Valacich, Joseph S ; Todd, Peter A. ; Morris, Michael G. / Paradoxes of online investing : Testing the influence of technology on user expectancies. In: Decision Sciences. 2006 ; Vol. 37, No. 2. pp. 205-246.
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