Melting-Pot or Homophily? - An Empirical Investigation of User Interactions in Virtual Investment-Related Communities

Abstract

Much has been discussed in popular press about virtual communities being melting pots of ideas and opinions. However, little is known as to how individuals actually interact in virtual communities and to what degree interactions occur between individuals with different ideas and opinions, which are reflected in how individuals respond (i.e., post) to others’ messages. In this study, we analyze individual interactions in virtual communities based on the cognitive dissonance theory. We argue that individual interaction decisions are motivated by the desire to decrease dissonance between an individual’s own opinion and the opinions of others in the community. This desire results in confirmation bias and homophily phenomenon in individual interaction decisions, i.e., individuals prefer interaction with others with similar opinions. Based on the cognitive dissonance theory, we propose that, the degree of confirmation bias is moderated by the magnitude of dissonance, the availability of objective references, and the community size. Using 72,019 individual interactions in 29 stock message boards on Yahoo! Finance investment-related communities, we show significant support for the hypotheses. We discuss the implications of the confirmation bias on individual decision making, information dissemination and the value of virtual communities as an information source.

Keywords: Virtual Communities, Homophily, Cognitive Dissonance, Psychological Biases, Confirmatory Bias, Social Network

JEL Classification: D71, D81, D83, M31