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Decision Making for Individual Investors: A Measurement of Latent Difficulties

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  • Ann Yang

Abstract

This study identifies how investors’ confidence and information gathering ability affect their decision making by using the investment theory on crystallized and fluid intelligences. We adopt the Rasch model to analyze latent and unobservable factors that cause difficulties in investment participation for investors in Taiwan. These investors are more confident in technical analysis but less confident in trading regulations. Further, they find media and professional sources difficult to trust, but professional advice is very accessible. Lower income significantly influences investors’ confidence and their information-gathering ability just as youth significantly contributes to more confidence. But gender and maturity significantly contribute to factors that concern their information gathering ability. Regional demographic differences show variations in decision making regarding investment preferences, while increasing income encourages investment diversification through multiple decisions. This study identifies a strong correlation between investors’ confidence and their information gathering ability, thus indicating that investors’ confidence enhances the development of the ability to gather investment information. Copyright Springer Science+Business Media, LLC 2013

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  • Ann Yang, 2013. "Decision Making for Individual Investors: A Measurement of Latent Difficulties," Journal of Financial Services Research, Springer;Western Finance Association, vol. 44(3), pages 303-329, December.
    • Handle: RePEc:kap:jfsres:v:44:y:2013:i:3:p:303-329
    DOI: 10.1007/s10693-012-0144-0
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    Cited by:

    1. Brooks, Chris & Sangiorgi, Ivan & Hillenbrand, Carola & Money, Kevin, 2018. "Why are older investors less willing to take financial risks?," International Review of Financial Analysis, Elsevier, vol. 56(C), pages 52-72.
    2. Suk Chong Tong, 2018. "Perceived risk and the interplay of expert endorsement, corporate image and investment knowledge in mutual fund advertising," Journal of Financial Services Marketing, Palgrave Macmillan, vol. 23(3), pages 179-189, December.
    3. Jarosław Pawłowski, 2018. "The Usefulness Of Financial Reporting For Financial Instruments In The Decision-Making Processes Of Individual Investors," Copernican Journal of Finance & Accounting, Uniwersytet Mikolaja Kopernika, vol. 7(4), pages 99-113.
    4. Andreas Oehler & Matthias Horn & Stefan Wendt, 2022. "Investor Characteristics and their Impact on the Decision to use a Robo-advisor," Journal of Financial Services Research, Springer;Western Finance Association, vol. 62(1), pages 91-125, October.
    5. David-Jan Jansen & Robert Mosch & Carin Cruijsen, 2015. "When Does the General Public Lose Trust in Banks?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 48(2), pages 127-141, October.

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    More about this item

    Keywords

    Decision making; Individual investors; Rasch measurement; Cognitive ability; G11;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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