The Contingency Effect of Cognitive Dissonance on the Relationship between Information Asymmetry, Regret, and Herding Behavior

This study examines the causality relationship between information asymmetry and herding behavior by considering the factors of regret and cognitive dissonance. The moderated-moderation model assigns regret as the first-order moderator and cognitive dissonance as the second-order moderator. The participants in this internet-based experimental research are individual investors in the Indonesian capital market. This study tested the hypothesis based on a 2x2x2+1 factorial design in a combined intra-subject and between-subject design. We have three main findings. First, the “follow your own signal” principle is more dominant than herding behavior. However, when information asymmetry occurs, herding behavior tends to increase. Second, there is a 2−way interaction between information asymmetry and regret for behavior with disordinal interaction patterns. Third, this study found a 3−way interaction between information asymmetry, regret, and cognitive dissonance