Determinants of Investors’ Information Search: Credibility and Confirmation
Jane M. Thayer
University of Georgia - J.M. Tull School of Accounting
February 3, 2010
Investors have strong economic incentives to engage in unbiased information search in order to maximize the expected value of their investments. I examine whether an investor’s psychological preference for information that supports his past investment decisions dominates his economic incentive to engage in unbiased information search. Results of a web-based experiment indicate that individuals who initially receive information that is unfavorable, or “preference-inconsistent,” regarding a chosen investment position conduct a biased search for additional information that supports their prior investment decision. Moreover, these investors tend to view lower-credibility, preference-consistent information at a similar rate to higher-credibility, preference-inconsistent information. These results limit the generalizability of findings in both accounting and psychology research regarding individuals’ use of information based on the credibility of its source.
Keywords: investors, information search, preferences, credibility, experiment
JEL Classification: D83, M40, M41, M49working papers series
Date posted: February 5, 2010
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