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The Effect of Financial Self-Efficacy on Myopic Loss Aversion in Financial Decision Making

Nettersheim, N. (2019) The Effect of Financial Self-Efficacy on Myopic Loss Aversion in Financial Decision Making.

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Abstract:For decades, researchers were confused by a phenomenon that is known as the equity premium puzzle. It describes a tendency of individuals to invest in low returning instead of the higher returning financial products. Research on the topic indicates that to solve this puzzle, psychological factors must be considered. Two promising concepts are Myopic Loss Aversion (split in Myopia and Loss Aversion) and Financial Self-Efficacy. An explorative study about the mentioned concepts was conducted in the frame of this paper. To investigate this topic, online questionnaires were filled out by 153 participants. Likert scale questionnaires were employed for Myopia and Financial Self-Efficacy while Loss Aversion was measured by questions concerning potential losses and gains. Multiple regression analyses and correlation analyses were executed. The results partly confirm findings of past literature and support the thesis that (Financial) Self-Efficacy does have a negative influence on Myopia. However, the connection of Loss Aversion with the other constructs could not be consistently demonstrated. These findings suggest that Myopia plays an important role in the equity premium puzzle and could potentially help to explain this conundrum. Future research might investigate the role of Loss Aversion and the measurement method used to collect data concerning it.
Item Type:Essay (Bachelor)
Clients:
Unknown organization, Bad Münstereifel
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:77 psychology, 83 economics
Programme:Psychology BSc (56604)
Link to this item:https://purl.utwente.nl/essays/78223
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