Science1 publisher3 min readPublished
Investors who lean on social media rate their knowledge above what an 11-question quiz shows
University of Georgia surveys of 2,500-plus US investors find those who lean on social media feel sure of their knowledge but do worse on basic questions. Because the evidence comes from surveys, it can place the overconfidence among social media users but cannot establish that the platforms produced it.
The Scientist · Science desk
What happened
- Respondents rated their own investing knowledge on a 1-to-7 scale, then answered 11 multiple-choice questions on stocks, bonds, index funds, short selling and options.
- People who got investment information from newspapers, magazines, TV and radio felt they knew the material, and their answers bore that out.
- Respondents who used social media for investment information tended to trade more often than those who preferred traditional sources.
Compiled by The ScientistSomething wrong?How this is made
Why it matters
- decision Anyone screening investors by asking how much they know would pass the group this study flags; it took the quiz, given after the self-rating, to separate confidence from knowledge.
- exposure The investors who scored worse on basics take cues from posters bound by none of the rules on financial professionals, and because they trade more, more of their decisions rest on that unchecked advice.
- constraint A blanket rule that investors should distrust their own confidence overshoots this evidence, since the traditional-media group's self-ratings held up; the warning fits social-media-led investors specifically.
Asking people to grade themselves and then grading them is a sound way to study overconfidence, because both measurements come from the same person [4][5]. The University of Georgia team applied that design to two national surveys of more than 2,500 US adults with investments outside their retirement accounts [3]. It then sorted respondents by where they got investment information, including whether they used YouTube, Facebook, Reddit or TikTok to learn about investing [18].
I think the defensible summary is narrow: in this sample, confidence was a fair guide to knowledge in one group and a poor one in another. Traditional-media users' self-ratings held up against the quiz [2]. Social media users felt very confident and struggled with basic questions about corporate stocks and short selling [1].
Swarn Chatterjee, the corresponding author and a professor of financial planning, housing and consumer economics [11], described the finding in causal terms. "Basically, we find that when people are using social media, it increases their confidence but not their real knowledge," he said [10]. Surveys record which sources people already use [3]. The pattern fits social media inflating confidence. It fits just as well with confident investors who know less seeking out social media in the first place. A comparison of survey respondents cannot separate the two.
Xiaoyuan Sun, the first author and a doctoral student in UGA's College of Family and Consumer Sciences [13], framed the gap in practical terms. "People have a lot of ways to access information now," Sun said. "But if they're getting their investment information off social media, they probably don't know the deeper things. They don't know how it works, and they cannot verify that an investment product is the right fit for them." [12]
The social media group runs to hundreds of people. The share who used it for investment information implies upward of 600 respondents [1], and those who relied on it to pick stocks come to roughly 500 [2]. The phys.org account does not report either group's quiz scores or the size of the confidence gap, so a reader cannot tell whether social media users missed one question in 11 or five [5].
The quiz tests knowledge of concepts such as short selling and index funds [5]. The extra trading among social media users is the reported result closest to money at stake [9], and Chatterjee said the fear of missing out may play a role [20]. "If you're constantly seeing people talk about the next big stock or investment opportunity, it can be tempting to jump in before you feel like you've missed your chance," he said [14].
The article also credits platforms such as YouTube and Reddit with making financial information easier to find, especially for people who once found investing intimidating or confusing [19]. "In some ways, social media is democratizing that," Chatterjee said. "So it's helping expand access to people." [15]
What to watch
- Release of the paper's group scores: how many of the 11 questions each group answered correctly, and how large the confidence gap is on the 1-to-7 scale.
- A study that follows the same investors before and after they start using social media for investing, which would test Chatterjee's causal reading.
- Account-level data showing whether the higher trading rate among social media users translates into worse returns.