Investor’s Intrinsic Motives and the Valence of Word-of-Mouth in Sequential Decision-Making: Modeling of Triple Serial Mediation

Abstract

Word-of-Mouth (WoM) is a socially embedded process, and investors engage in social considerations to achieve self-motives. Investors attempt to share negative WoM (NWoM) to emotionally connect (self-affirm) to strengthen existing social ties following prior losses. In contrast, investors attempt to share positive WoM (PWoM) to self-enhance to attract others into developing new social ties. Thereby, this study aims to predict the impact of prior losses or gains on investors’ later decisions by engaging in the valence of WoM to achieve different underlying self-motives and social-motives. This study used experimental data and employed PROCESS tool model 6 to check the validity of the proposed triple serial mediation model. Findings support the viability of the triple mediation model that investors seek to achieve different underlying self-motives and social-motives manifested in PWoM or NWoM, following prior gains or losses. Investors seek to self-affirm by strengthening components of social-motives through engaging in NWoM, following prior losses. While investors seek to self-enhance to develop components of social-motives through sharing PWoM, following prior gains. Findings provide significant implications for researchers, managers, financial advisors, and analysts. Researchers, managers, and analysts can incorporate investors’ intrinsic factors in traditional economic models to better predict investors’ economic behavior. Financial advisors need to understand self-motives and social-motives that change clients’ risk attitude and frame investment advice to achieve particular clients’ self-motives and social-motives.

Keywords:

• Word-of-mouth
• self-motives
• social-motives
• behavioral finance
• social finance
• risk-attitude
• sequential risk-taking

JEL CLASSIFICATION:

• G41
• G11

Disclosure statement

There is no declaration of interest.

Data availability statement

Data will not be provided with the manuscript on publication but can be shared on request.

Notes

1 Social interaction in the form of WoM engages both sender and receiver. The WoM sender shares investment experiences and opinions and seeks positive evaluation to achieve a greater level of self-determination. Whereas the WoM receiver pursues investment-related information. Hereafter, investors sharing WoM are termed as WoM-sender, and investors seeking information are referred to as WoM-receiver. According to the uses and gratification theory, individuals seek a specific media that can fulfill their needs efficiently and effectively (Ko, Cho, and Roberts 2005). Web-based online social networking sites are most widely used to share unbiased experiences and opinions in the form of electronic WoM. Such platforms provide WoM-sender the opportunity to write (publish) opinions and allow WoM-sender to read other consumers’ experiences, as well as allow them to contribute by themselves (Hennig-Thurau et al. 2004). Therefore, this study assumes WoM-sender sharing WoM and WoM-receiver following other investors’ opinions and experiences on social networking sites as the settings of the study.

2 The valence of WoM consists of negative WoM (NWoM) and positive WoM (PWoM). The NWoM (PWoM) represents sharing of negative (or positive) opinions related to investment experience on social networking sites.

3 This study extends the model of Ahmad, Oriani, and De Angelis (2021) therefore only three hypotheses are developed in this study. For theoretical justification of other direct and indirect effects, refer to the theory development and hypothesis section of Ahmad, Oriani, and De Angelis (2021).

4 Following are two specific autobiographical task questions that were asked to the participants to provide negative or positive investment experience.

Task question to share negative investment experience: “Please write a short description of your NEGATIVE outcome investment experience in the stock market under BEARISH market settings. (Short description can incorporate how you selected stocks, why prices went down, how you felt with your loss, with whom you shared your NEGATIVE investment experience, and you can mention any social media message that you shared with family, friends or with others related to your NEGATIVE investment experience).”

Task question to share positive investment experience: “Please write a short description of your POSITIVE outcome investment experience in the stock market under BULLISH market settings. (Short description can incorporate how you selected stocks, why prices went up, how you felt with your gain, with whom you shared your POSITIVE investment experience, and you can mention any social media message that you shared with family, friends or with others related to your POSITIVE investment experience).”

5 For instance, consider following two responses for bearish and bullish market settings that were retained in the sample.

Example 1 (loss experience): “Our experience was in 2008 or 2009 when lot of people lost money. My husband and I had our retirement money in stocks with a company that we trusted. Our finance man did not contact us or give us any information as to what to do when stocks went way low. We were losing over half of our retirement money and were quite worried. We went to our finance man's office and told him we wanted our money that was left. We lost over one half our retirement savings. We were absolutely devastated.”

Example 2 (Gain experience): “It was my first investment experience. Stock market was booming, and I decided to invest in it. Initially I invested 300,000 and bought shares on the recommendation of my friend. With market the value of my stocks also raised. I shared my positive experience with my family and friends.”

Following are examples of two responses that were dropped from the analysis.

Example 1 (loss experience): “Lost $3000, extremely desperate, shared with friends and family.”

Example 2 (gain experience): “My stocks were selected on my behalf by a third party.”

6 PROCESS tool model 6 allows for the indirect effect of multiple mediators in serial.

7 For detailed results and discussion refer to experiment 2 results of Ahmad, Oriani, and De Angelis (2021).