The Role of Social Media and Social Interaction in Investment Decision Making in the Digital Era: The Mediating Role of Risk Tolerance

Understanding how digital information sources influence retail investor behaviour in emerging markets is critical for financial stability and inclusion. This study examined whether social media use and offline social interaction shape equity investment decisions among Indonesian retail investors and whether risk tolerance mediates these relationships. We surveyed 300 self-directed stock investors and analysed the data with partial least-squares structural equation modelling (SmartPLS). The measurement model satisfied all reliability and validity thresholds and the structural model achieved good fit, high predictive relevance and no multicollinearity. Investment decisions were explained. Social interaction increased investment propensity and elevated risk tolerance; the mediated component represented 35 % of the total effect. Social media exposure produced neither direct nor indirect influence. Risk tolerance strongly predicted investment behaviour, whereas loss aversion dampened it. These results demonstrate that interpersonal networks, rather than digital feeds, are the primary conduit through which Indonesian investors acquire actionable information, and that building appropriate risk tolerance is pivotal for translating social learning into market participation. The findings isolate context-specific drivers within behavioural finance and suggest that policy efforts should focus on investor communities and risk-education initiatives rather than generic social-media campaigns. Future research should replicate the model in other emerging economies and incorporate real-time sentiment analytics to clarify boundary conditions as algorithmic trading and social platforms continue to converge. Keywords: social media; investment decision making; risk tolerance; behavioural finance social interaction; retail investors; Indonesia.