Determinants of Investors’ Information Search: Credibility and Confirmation
Jane M. Thayer
University of Virginia
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, M49
Date posted: February 5, 2010