Paradoxes of Online Investing: Testing the Influence of Technology on User Expectancies


Decision Sciences

May 2006, vol. 37, n°2

Departments: Information Systems and Operations Management, GREGHEC (CNRS)

At an increasing rate, individual investors are taking personal control over their fi-nancial destinies by investing their money online. Compared to offline do-it-yourselfapproaches, evidence suggests that investors exhibit lofty expectations and perform significantlyworse after going online. However, little is understood about the mechanismsfueling expectancies, the role technologies play in their formation, or how technologiesshape investment decisions. Therefore, this article explores the paradoxical nature ofonline investing technologies, which can give rise to a heightened state of conviction inone’s capability to invest successfully. Drawing on Social Cognitive Theory, the conceptsof encapsulation and combination are introduced to develop a research model describinghow functional and technical self-efficacy judgments independently and collectivelyshape and influence outcome expectancies. The results suggest that perceptions aboutwhat one can accomplish through online investing technologies can lead investors toexaggerate their capabilities, which, in turn, produces elevated expectancies of financialpayoffs and nonmonetary rewards. These findings carry important implications. Intasks requiring both computing and functional skills, the principals of encapsulationand combination highlight the importance of comprehensively capturing self-efficacy beliefs across skill domain boundaries. Moreover, online investing represents a paradoxicalcase that challenges the traditional assumption that fostering a robust sense ofefficacy represents a purely noble enterprise. In fact, strong self-efficacy beliefs canprove counterproductive, leading to severe, irreversible, and unintended consequences.Going forward, these discoveries provide a solid foundation to enhance systems designsand facilitate a deeper understanding of user psychology