The Effect of Media Types, Message Cues and Framing on Investment Decisions

The current research examined the effect of financial tech-blogs on investment decisions. Technology blogs specialize in profiling startups and breaking technology news for a readership of entrepreneurs and venture capitalists (VC), a crowd that is looking for profitable start-ups while dealing with inherent uncertainty.In order to study the possible effect of tech-blogs on investment decisions, the research addresses theories about VCs' information processing. Zacharackis and Shepherd (2001) argued that VCs prefer to look for new information that suits their intuitions about investments or ignore information that contradicts them, also known as ‘confirmation bias’.Supporting these arguments, Social Judgment Theory presents two types of information cues that support decision making: cognitive and task cues. Cognitive cues are thoughts or beliefs that occur in response to a stimulus and assist in interpreting it to terms of good or bad, success or failure, hostile or friendly. Regarding investment decision making, these cues are used as simple information criteria such as market size or leadership ability. However, the simplistic distinction between success and failure neutralizes nuances that may be more relevant to the investment results.On the other hand, task cues are the information factors that best distinguish between possible outcomes. These cues, such as completeness of team or time to product development, hold more complex information which VCs deem important but not necessarily in the preferred simple form. Task cues require more effort and do not support fast decisions. Therefore VCs prefer to use cognitive cues that justify their intuition about the investment.Kuran & Sunstein (1999) suggest another cognitive cue, the "availability cascade". This concept refers to VCs' tendency to follow the media due to its broad availability which generates collective beliefs. Collective beliefs, accurate or not, support VCs’ confidence and by that, make the news items more valuable for decision making. This fact brings up questions about information selection and interpretation strategies which are being determined by a central player, the media.Mass communication research has documented the impact of media reports on public perceptions of political candidates and their framing as positive or negative. Similarly, highlighting positive or negative information about a financial subject is likely to increase or decrease uncertainty. Consequently, exposing VCs to a positively framed start-up may result in a positive investment decision and vice versa in the case of negative framing. Combining the Social Judgment, Availability Cascade and Framing theories allows to hypothesize about a VC’s reaction to media coverage of a start-up company.The large variety of media types available as a result of digitization raises a question regarding the influence of the media type while controlling for other variables. Studies indicate that VCs prefer to rely on conservative sources. It follows that a comparison between a blog and a newspaper regarding influence on investment decisions will reveal the superiority of the traditional newspaper over the avant garde blog.