DETERMINING THE INFLUENCING FACTORS OF INDIVIDUAL FINANCIAL DECISION-MAKING BEHAVIOR BIAS UNDER PROSPECT THEORY

• Main Author: Anastasia Yeoda, Wendy
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/64594
• Institution: Institut Teknologi Bandung

Uncertainty and risk are considered as familiar components whenever an individual required to conduct decision making. Several studies have proved that people are cognitively biased in deciding under uncertainty (Simmons, Zardkoohi, & Station, 2017). This evidence concludes that Expected Utility Theory is violated and people are not a fully rational decision-maker. Daniel Kahneman and Amos Tversky have proposed a theory named Prospect Theory, both as an alternative and critique towards Expected Utility Theory. Since then, Kahneman and Tversky have been recognized as the key contributors to Behavioral Finance theory. Behavioral Finance study, especially the one that affiliates with Prospect Theory, is scarce studied in Indonesia. The purpose of this study is to identify factors that have significant influence towards the individual behavioral bias under Prospect Theory, which elaborated into Reflection Effect, Certainty Effect, Endowment Effect, and Isolation Effect. The factors consist of the respondents’ demographic profile (Gender, Age, Monthly Income, Work Experience, and Education) as well as contributing their financial literacy. This study specifically aimed at subjects who are West Java domiciled who are included or above the productive age (15 years old). The total respondents participated in this study amounted to 423 respondents, which the data obtained through an online questionnaire. The data analyzed both with descriptive analysis and statistical analysis (logistic regression method). This study concluded that there is significant influence from gender towards the Reflection and Certainty Effect, while financial literacy has significant influence towards the Isolation Effect exhibition