Framing Effect and Financial Wellbeing: Role of Investment Behaviors as Mediator
DOI:
https://doi.org/10.26710/reads.v5i2.555Keywords:
Framing Effect, Investment Behaviors, Financial WellbeingAbstract
Based on the premise that human beings are not rational agents and are frame dependent while making investment decisions, this study has found a significant impact of framing effect on investment behaviors and financial wellbeing. Structural Equation Modelling is employed in Stata, on the data collected from 344 respondents from Pakistan (299 salaried persons and 45 businessmen), having more than three years’ experience. We supported the view of behavioral finance that framing effect could influence the financial wellbeing negatively. We extended the analysis further by validating the mediating role of investment behaviors between framing effect and financial wellbeing, which is a contribution to the body of knowledge in the field of behavioral finance.
References
Ali, A., Rahman, M. S., &Bakar, A. (2015).Financial Satisfaction and the Influence of Financial. Social Indicators Research, 137-156.
Allgood, S., &Walstad, W. B. (2016).The Effects of Perceived and Actual Financial Literacy on Financial Behaviors.Economoic Inquiry, 54(01), 675-697.
Antonides, G., Groot, I. M., &Raaij, W. F. (2011).Mental Budgeting and the Management of Household Finance. Journal of Economic Psychology, 31, 546-555.
Atkinson, T. M., Rosenfeld, B. D., Sit, L., Mendoza, T. R., Fruscione, M., Lavene, D., . . .Basch, E. (2011). Using Confirmatory Factor Analysis to Evaluate Construct Validity of the Brief Pain Inventory (BPI). Journal of Pain and Symptom Management, 558-565.
Baker, H., &Ricciardi, V. (2014). How biases affect investor behavior. The European Financial Review .
Barber, B. M., &Odean, T. (2001). Boys will be Boys: Gender, Overconfidence, and Common Stock Investment. Quarterly Journal of Economics, 116(1), 261-292.
Barber, B. M., &Odean, T. (2013). The Behavior of Individual Investors. In G. M. Constantinides, M. Harris, & R. M. Stulz (Eds.), Handbook of the Economics and Finance (pp. 1533-1570). Elsevier B.V.
Barber, B., &Odean, T. (2000). Trading is hazardous to your wealth: The common stock investment performance of individual investors. The journal of Finance, 55(2), 773-806.
Campbell, J. (2006). Household Finance. The Journal of Finance, LXI(4), 1553-1604.
Collingridge, D. (2014, 09 22).Validating a Questionnaire. Retrieved from https://www.methodspace.com: https://www.methodspace.com/validating-a-questionnaire/
Consumer Financial Protection Bureau.(2017, 05).CFPB Financial Well-Being Scale. Retrieved from https://s3.amazonaws.com: https://s3.amazonaws.com/files.consumerfinance.gov/f/documents/201705_cfpb_financial-well-being-scale-technical-report.pdf
CPFB-USA.(2015, 01). Financial Wellbeing: The Goal of Financial Education. Retrieved from www.consumerfinance.gov: http://files.consumerfinance.gov/f/201501_cfpb_report_financial-well-being.pdf
Fasolo, B., McClelland, G. H., & Todd, P. M. (2007). Escaping the Tyranny of Choice: When Fewer Attributes make Choice Easier. Marketing Theory, 13-26.
Frydman, C., &Camerer, C. F. (2016).The Psychology and Neuroscience of Financial Decision Making. Trends in Cognitive Sciences, 20(9), 661-675.
Groot, I. M., &Raaij, W. F. (2016). The Role of Mental Budgeting in Healthy Financial Behavior: A Survey Among Self-Employed Entrepreneurs. Applied Studies in Agribusiness and Commerce, 10(2-3), 15-26.
Gutter, M., &Copur, Z. (2011). Financial Behaviors and Financial Well-Being of College Students: Evidence from a National Survey. Journal of Family and Economic Issues, 32(4), 699-714.
Hair, J. F., Sarstedt, M., Ringle, C. M., & Mena, J. A. (2012).An Assessment of the Use of Partial Least Squares Structural Equation Modeling in Marketing Research. Journal of the Academy of Marketing Science, 414-433.
Howard, J. A. (2012). Behavioral Finance: Contributions of Cognitive Psychology and Neuroscience to Decision Making. Journal of Organizational Psychology, 12(3), 52-70.
Jain, R., Jain, P., & Jain, C. (2015).Behavioral Biases in the Decision Making of Individual Investors. IUP Journal of Management Research, 7-27.
Kahneman, D., &Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica: Journal of the econometric society, , 47(2), 263-291.
Kahneman, D., &Tversky, A. (1984).Choices, Values and Frames. American Psychologist, 39(4), 341-350.
Kim, J., Garman, E. T., &Sorhaindo, B. (2003).Relationships among Credit Counseling Clients’ Financial Well-Being, Financial Behaviors, Financial Stressor Events, and Health. Financial Counseling, 75-87.
Lusardi, A., & Mitchell, O. S. (2006). Financial Literacy and Planning: Implications for Retirement Wellbeing. Retrieved 09 14, 2016, from http://www.dartmouth.edu/~alusardi/Papers/FinancialLiteracy.pdf
Lusardi, A., & Mitchell, O. S. (2007). Baby Boomer Retirement Security: The Roles of Planning, Financial Literacy, and Housing Wealth. Journal of Monetary Economics, 54, 205-224.
Malhotra, N. K., Jain, A. K., &Lagakos, S. W. (1982). The Information Overload Controversy: An Alternative Viewpoint. Journal of Marketing, 27-37.
Neumann, V. J., & Morgenstern, O. (1944).Theory of Games and Economic Behavior. Princeton: Princeton University Press.
OECD.(2013, 06).Improving Financial Education Effectiveness through Behavioral Economics. Retrieved from https://www.oecd.org: https://www.oecd.org/daf/fin/financial-education/TrustFund2013_OECDImproving_Fin_Ed_effectiveness_through_Behavioural_Economics.pdf
Otuteye, E., &Siddiquee, M. (2014).Overcoming Cognitive Biases: A Heuristic for Making Value Investing Decisions. The Journal of Behavioral Finance, 16(2), 140-149.
Pedhazur, E. J., &Schmelkin, L. P. (1991). Measurement, Design, and Analysis: An Integrated Approach. New York: Psychology Press.
Rubin, A., &Babbie, E. R. (2010).Essential Research Methods for Social Work. Belmont: Cengage Learning.
Rubinstein, A. (1998). Modeling Bounded Rationality. London: The MIT Press.
Rust, J., &Golombok, S. (2009). Modern Psychometrics: The Science of Psychological Assessment. London: Routledge.
Shefrin, H. M., &Thaler, R. H. (1988).The Behavioral Life-Cycle Hypothesis. Economic Inquiry, 26(4), 609-643.
Simon, H. A. (1957). A Behavioral Model of Rational Choice. In H. A. Simon (Ed.), Models of Man, Social and Rational: Mathematical Essays on Rational Human Behavior in a Social Setting (pp. 79-87). New York: Wiley.
Simon, H. A. (1999). Bounded Rationality and Organizational Learning. Organization Science, 2(1), 17-27.
Simon, H. A. (2000). Bounded Rationality in Social Science: Today and Tomorrow. Mind & Society, 1(1), 25-39.
Slovic, P. (2001). Psychological Study of Human Judgment: Implications for Investment Decision Making. Journal of Psychology and Financial Markets, 2(3), 160-172.
Stango, V., &Zinman, J. (2009).Exponential Growth Bias and Household Finance. The Journal of Finance, LXIV(06), 2807-2849.
Thaler, R. H. (1990). Saving, Fungibility, and Mental Accounts. The Journal of Economic Perspectives, 4(1), 193-205.
Thaler, R. H., &Sunstein, C. R. (2008). Nudge: Improving Decisions About Health, Wealth, and Happiness. New Haven and London: Yale University Press.
Tsai, M.-C., Dwyer, R. E., &Tsay, R.-M. (2016). Does Financial Assistance Really Assist? The Impact of Debt on Wellbeing, Health Behavior and Self-Concept in Taiwan. Social Indicators Research, 127-147.
Tversky, A., &Kahneman, D. (1974).Judgement under Uncertainty: Heuristics and Biases. Science, 185(4157), 1124-1131.
Vlaev, I., & Elliott, A. (2014).Financial Well-Being Components. Social Indicators Research, 118(3), 1103-1123.
Xu, Y., Beller, A. H., Roberts, B. W., & Brown, J. R. (2015).Personality and Young Adult Financial Distress. Journal of Economic Psychology, 90-100.
