Online social networking increases financial risk-taking

The popularity of online social networking sites such as Facebook, LinkedIn, and Twitter has engendered discussion regarding their consequences for users, whether they be positive or negative. In this research, we draw on the cushion hypothesis from psychology and social capital theory from sociology to posit that using online social networking increases users' financial risk-taking. Three studies show that online social circles such as “Facebook friends” are akin to collectivistic communities by offering users a “cushion” that mitigates financial loss, which increases users' financial risk-taking, consistent with the cushion hypothesis. This greater financial risk-taking arises primarily when users perceive their online social circles as able or willing to provide financial support or of high quality, consistent with social capital theory. Thus, we link online social networking with financial risk-taking, with important welfare implications for today's online users.