When Losers Talk: Information Diffusion, Social Norms, and Conversations of Investors

ABSTRACT Conversations are vessels through which information travels. To understand how investment information spreads via person‐to‐person conversations, I observe paired investors in a well‐controlled experiment. While self‐enhancement bias suggests that investors are more likely to discuss their performance when they have positive returns, I find the reverse: in conversations, investors with positive returns appear less likely to talk about their investment outcome. Experimental transcripts highlight conversational norms as a key mechanism. For example, though sharing information about one's positive performance may feel good, it may also have a negative effect on the listener, and making one's counterpart feel bad is often considered socially inappropriate. Thus, in the experiment, investors with positive returns are reluctant to discuss their performance if they are uncertain about their conversation partner's return, or if they learn it is negative. These results show that conversational norms shape the diffusion of investment information.