THE EFFECTS OF CULTURE IN FINANCIAL DECISION: EMPIRICAL EVIDENCE OF BEHAVIORAL BIASED IN INDONESIA

• Main Author: Oktavihana Sinaga, Monika
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/72443
• Institution: Institut Teknologi Bandung

Behavioral finance studies the influences of cognitive and emotional factors in the process of making investing decisions. Contrary to behavioral finance, traditional finance claims that investors are similar, rational, and unaffected in making a decision which maximizes the expected utility. However, it is undeniable that human naturally differs one another and factors, such as condition, emotion, environment, have a significant impact on individual behaviors. These behaviors could lead investors to make an irrational and less optimal choice. Moving to Indonesia, it is the fourth populous country in the world with over 200 million people living in, is the home of over 300 ethnic groups which speak over 700 languages. Each ethnic group has adopted its language, belief, and habit. Indonesia is known as hugely diverse and culturally rich nation. The uniqueness of Indonesia’s people is they define themselves according to their ethnic group and place of birth before their national identity. This shows that Indonesia people are greatly influenced by cultural background. The culture certainly has impacts on daily life. Hence, culture influences to the financial decision are an attractive issue to be observed. This study aims to find the effect of ethnic groups in Indonesia towards nine behaviors: Risk Preference, Overconfidence, Herding, Regret Aversion, Gambler’s Fallacy, Representativeness, Anchoring, Cognitive Dissonance, and Hindsight. The result is expected to help Indonesia investors avoid uncertain condition and maximizing return based on the ethnic groups. A survey is conducted and distributed online to stock investors in Indonesia with the questions regarding to bias performed in stock investing activity. There are 160 respondents who came from Javanese, Batak, Sundanese, Chinese Descent, Madura, Bugis, and Others ethnic group. Logistic regression is used to analyzed the data. The result shows that most behaviors are not influenced by ethnic group. Thus, culture differences, representated by ethnic identity of respondents, has no significant effect toward bias while making stock investing decision in Indonesian. Only for Hindsight Batak group shows probability of weakening the appearance of this bias.