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Decision Making for Individual Investors: A Measurement of Latent Difficulties

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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.

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Notes

  1. The currency in Taiwan is the New Taiwan Dollar and abbreviated as “NT$”. The exchange rate between New Taiwan Dollar and U Dollar is about NT$30: US$1 as of May 30, 2012. A mean monthly income of NT$38,560, therefore, equals US$1,285.

  2. To compare each respondent’s reaction in different dimensions, the relationship of different dimensions can be examined (Ghanem et al. 2010; Gorter et al. 2009). The Spearman correlation coefficient is used to determine whether the correlation between different outcome measures exists (Hawthorne et al. 2011).

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Acknowledgments

The author is grateful to Haluk Ünal (the Editor-in-Chief), David K. Musto (the editor) and an anonymous referee for their helpful comments and suggestions that have significantly improved this paper. The author thanks the National Science Council (NSC) of Taiwan, ROC, for financially supporting this research under the grant NSC97-2410-H-006-094-SSS.

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  1. Institute of International Management, National Cheng Kung University, Tainan, Taiwan, Republic of China

    Ann Shawing Yang

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Correspondence to Ann Shawing Yang.

Appendix

Appendix

Table 9 Tasks in the 37-task Questionnaire for the Investor Decision-Making Survey. This table presents the 37 tasks of the survey questionnaire. Respondents were asked to select the most appropriate response on a five-point Likert scale. This questionnaire is categorized into investor-confidence and information-gathering dimensions by asking “how difficult” a task is for execution
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Yang, A.S. Decision Making for Individual Investors: A Measurement of Latent Difficulties. J Financ Serv Res 44, 303–329 (2013). https://doi.org/10.1007/s10693-012-0144-0

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