Question

Over the last twenty years or so, progress in Information Technology (IT) has made it much easier and cheaper for individual investors to trade in financial markets. Most of this trend has been driven by the growth in the ability of individual investors to trade on Internet platforms; whereas, in the past they would have to initiate trades by telephone or in writing. If overconfidence is a substantial behavioral bias among individual investors, do you think this technological trend has increased or decreased the investment returns of individual investors?

Answer 1

IT advents has lead to decrease in the investors return compared to the era of telephone or in writing.

Earlier, when the investor was about to make the bad decision, the telephone operator or the broker executing the deal used to sometimes caution the investor with their own expert knowledge and persuade the investor to not take certain decision. Whereas in IT enabled trading there is no contact with such expert and the user relies completely on own information, which could be infused with overconfidence.

Also, telephone and writing ensured that the decision is not completely on impulse.