The influence of upward social comparison on retail trading behaviour

Abstract

Online investing is often facilitated by digital platforms, where the information of peer top performers can be widely accessible and distributed. However, the influence of such information on retail investors’ psychology, their trading behaviour and potential risks they may be prone to is poorly understood. We investigate the impact of upward social comparison on risk-taking, trading activity and investor satisfaction using a tailored experiment with 807 experienced retail investors trading on a dynamically evolving simulated stock market, designed to systematically measure various facets of trading activity. We find that investors presented with an upward social comparison take more risk and trade more actively, and they report significantly lower satisfaction with their own performance. Our findings demonstrate the pitfalls of modern investment platforms with peer information and social trading. The broad implications of this study also provide guidelines for improving retail investor satisfaction and protection.