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

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 * This article is dedicated in memory of the first author's father, Arlen B. Looney, Jr., who recently lost his long and heroic battle with cancer. We thank the College of Business and Economics at Washington State University and the McIntire School of Commerce at the University of Virginia, who provided resources and funding for this research. We sincerely appreciate the insightful comments of the editors and reviewers on earlier versions of this manuscript. † Corresponding author. 206Paradoxes of Online Investing beliefs across skill domain boundaries. Moreover, online investing represents a paradoxical 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.

Collective Problem-Solving: The Role of Self-Efficacy, Skill, and Prior Knowledge

“…In the following we unpack these explanations. Looney et al (2006) distinguish between activities that involve different skills, each confined to a discrete domain, and activities that employ a blend of skills from two or more domains. In their study of online financial trading they viewed computer self-efficacy and investment self-efficacy as two distinct components, but combined online trading self-efficacy and perceived efficacy at making the investment decisions into single construct that consisted of items in the form of: "I can use an online investment web-site to choose investments wisely".…”

“…Another study described a three-level model of self-efficacy in the area of online investment (Looney et al, 2006). The model defines the relations among the perceived efficacy in the technical component of the task, Computer Self-Efficacy in this case, efficacy at the functional domain component, Investment Self-Efficacy, and their combination, i.e., Online Investment Self-Efficacy.…”

“…Four of the items, Prediction Markets Self-Efficacy (PMSE), related to selfefficacy at the trading. They were based on a scale developed by Looney et al (2006) for measuring individual perceived efficacy at utilizing online technologies to accomplish investmentrelated tasks such as employing investment strategy or identifying good investments.…”

“…The first is coping with the technical aspects of operating the computer application used for the task and the other is the intellectual task itself. Previous studies addressed the interplay of perception dimensions of self-efficacy at such complex tasks (Looney, Valacich, Todd, & Morris, 2006;Marakas, Yi, & Johnson, 1998) and other studies demonstrated that individuals who exhibit higher degrees of self-efficacy perform better at problem solving (Bandura & Wood, 1989;Bouffard-Bouchard, 1990;Pajares & Kranzler, 1995).…”

The Importance of the Interface between Humans and Computers on the Effectiveness of eHRM

“…In addition, research on computer self-efficacy (Marakas, Yi, & Johnson, 1998) can inform researchers in regards to how computing confidence can affect benefits outcomes. For instance, research has found that computer selfefficacy was positively related to user expectations about the outcomes of online self-service investing (Looney, Valacich, Todd, & Morris, 2006). Research has also found that employees with high levels of Volume 9 Issue 1 technology anxiety were less satisfied with ESS and less likely to use ESS than those with lower levels of technology anxiety (Meuter, Ostrom, Bitner & Roundtree, 2003).…”