FACTORS AFFECTING THE INVESTMENT DECISIONS AMONG COLLEGE

FACULTY OF RAMON MAGSAYSAY MEMORIAL COLLEGES

BUSINESS RESEARCH PAPER

PRESENTED TO

THE FACULTY OF THE COLLEGE OF THE BUSINESS EDUCATION

RAMON MAGSAYSAY MEMORIAL COLLEGES

GENERAL SANTOS CITY

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS

IN BUSINESS RESEARCH

BY:

KRISTINE P. OLAER

2022
 CHAPTER I

INTRODUCTION

This chapter presents the statement of the problem, significance of the

study, conceptual and theoretical framework, scope and limitations, and the

definition of terms.

Background of the Study

Investment has different meaning in the context of finance and economics.

Finance investment is putting money into something with the expectation of gain

that upon thorough analysis has a high degree of security for the principal

amount, as well as security of return, within an expected period of time. In

contrast, putting money into something with an expectation of gain without making

thorough analysis is speculation or gambling. Thus, Finance Investment involves

decision making process in order to ensure security of both the principal amount

and the return on investment (ROI) within an expected period of time. In

economics, investment means creation of capital or goods capable of producing

other goods or services. With reference to individuals, investment decisions

should be made very wisely and with proper research and analysis. Investment is

always attached with the element of risk of losing the invested money and this

loss is not under the control of the investor. Hence, it is always advisable to

measure and analyze all risks involved before making investments. Plenty of

investment avenues available for the investors make their decision-making

process more critical and complex. There are a number of factors which influence

the people to make their investment decisions. Demographic factors of investors

such as gender, age, education, family size, annual income, and savings have

much significance in the Investment Decision Making Process, especially in the

Indian context, it assumes greater significance (N. GEETHA, and M. RAMESH,

2012).

Decision-making is a complex process which includes analysis of several

factors and following various steps. Investors’ decisions are derived from complex

models of finance. These models include those based on expected risk and return

associated with an investment, and risk-based asset pricing models like CAPM

(Capital Asset Pricing Model). But decisions should never be made only by relying

on the personal resources and complex models, which do not consider the

situational factors. Situational factors are extended not only to the problem faced

by the decision maker, but also to the environment. So, in order to make

appropriate decision, one needs to analyze the variables of the problem by

mediating them applying cognitive psychology. Decision making can be defined

as the process of choosing a particular alternative from a number of alternatives.

It is an activity that follows after proper evaluation of all the alternatives. Hence,

decision makers need to keep themselves up-to-date by obtaining

information/knowledge from diversified fields so that they can accomplish the

tasks they have to work upon (L. Kengatharan and N. Kengatharan, 2014).

The lack of adequate financial knowledge and the ability to integrate with

an inadequate level of understanding and diligence makes investors more

vulnerable to fraud and imprudent investment decisions because they ignore the

basic measures of caution before signing a contract with a financial services

provider. Regional comparative statistics reflect that Pakistan has the lowest

indicators of savings and investment, including insurance penetration and

participation of pension and mutual funds. The country also has a low base of

investors in the capital markets resulting low volumes and lack of liquidity (Kashif

Arif, 2015).

Saving and investment schemes are very important for countries which are

experiencing deficiencies in economic growth. There is a need for saving

mobilization, which means advocating the need for more and more savings to

improve the economic policies. Savings is a habit specially embodied to woman

and now investment also. Even in the past, when women mainly depended on

others’ income, they used to save to meet emergencies as well as for future

requirements. The knowledge of the relationship between risk and return along

with the knowledge of industrial sectors, economic indicators, company’s

performance, their analysis techniques, portfolio management techniques, etc.,

also affect the investment decision of individuals. The source of information

regarding investment avenues also guides the investment decisions. One of the

most important factors affecting personal investment is the availability of disposal

funds. Apart from all these factors, invested money should be convertible into

cash in the hour of need and this is an important factor, which affects personal

investment. The success of every investment decision has become increasingly

important in recent times. Making sound investment decision requires both

knowledge and skill. In today’s rapidly changing financial environment, it is critical

that individuals not only protect and enhance their current financial resources, but
also prepare for future security and against loss of income. This requires careful

planning and prudent management of one’s financial assets (Pooja Chaturvedi

Sharma, 2020).

In General Santos City, there are firms who offers investments to every

individual not just for personal satisfaction but mainly of course for funding a sort

of business for living. Moreover, investment schemes, indirect investments

offerings are some of the ways that provide funds to those individuals who seeks

to address their decisions in a worthy investment process. Thus, in order to avoid

the risks, especially that scams and any related fraudulent activities are very

rampant and definitely unavoidable somehow because of less security measures

that protects not just the investor's identity but also the reputation of a certain

entity that would be reflected its performance not just in the industry but in the

economy as well.

This study aims to determine the factors affecting the investment decisions

among college faculty of Ramon Magsaysay Memorial Colleges. The researcher

needs to identify what variables is the best to improve that can affect the

investment decisions among college faculty of Ramon Magsaysay Memorial

Colleges.

Theoretical Framework

Expected Utility Theory and Investor Decision making

In an effort to describe rational behavior when people experience

uncertainty, the expected utility theory was developed by John von Neumann and
Oskar Morgenstern. This theory argues that when confronted with decision-

making under uncertainty, individuals should act in a specific way. The principle is

"nor-mative" in this context, which means that it explains how people can act

rationally. This is in relation to a "positive" theory that characterizes how

individuals actually behave.

Assumptions

1. (Ordering of prospects): A decision-maker may always say, given any two

prospects, that one is preferred to the other or that he/she is indifferent between

them. In addition, completeness and continuity must remain. Completeness

implies that all potential prospects can be categorized in such a way, and

consistency (transitivity) implies that A must be preferred to C if A is preferred to

B, and B is preferred to C.

2. In view of the two normal possibilities, P10 and P20 with u1

and u2 linked, we have: P10 ~ P20 means u1 > u2 P10 * P20 means that u1 = u2

3. Equivalent norm prospects): There is one and only one value u * in view of

every certain income level w * between wL and wH, so that: (u *, wH, wL) w * ~ P0

4. (Rational equivalence): Given a standard compound prospect (PSC), and given

its standard rational counterpart, which is a standard prospect itself (P0), then:

PSC~P0
5. Independence of context): A prospect P can always be expressed as a regular

compound prospect (PSC), where the former’s wealth levels are replaced by their

standard prospects equal to them.

Utility Characteristics

• Higher wealth contributes to greater practical utility

• The equivalent of certainty is less than the estimated asset value of the

prospect.

• Nevertheless, until a positive linear transformation, all utility functions for a given

individual are unique.

1.2 Prospects Theory and Investor Decision Making Prospect theory is a theory of

psychology that explains how people make decisions when alternatives involving

risk, probability, and uncertainty are presented. It indicates that individuals make

choices based on perceived losses or benefits. Most individuals will opt to

maintain the wealth they currently have, given the option of equal odds, rather

than gamble the ability to increase their present wealth. People are generally

averse to the prospect of losing, so instead of taking a chance to make an equal

gain, they would rather prevent a loss. In two stages, the theory explains the

decision-making process, including:

a. Editing Phase

The editing stage applies to how the choices for choice or the framing

effects are characterized by individuals involved in decision-making. The effects

illustrate how the wording, order, or process in which the choices are presented

affects the choice of an individual.

b. Evaluation Phase

Individuals prefer to act as though they can make a choice based on the

possible results in the assessment process and select the alternative with a higher

utility. To calculate and compare the results of each prospect the phase uses

statistical analysis. The assessment process contains two indices, i.e. the function

of value and the function of weighting, which are used to compare prospects.

c. Relative Positioning

Relative positioning means that individuals appear to reflect less on their

final income or asset and more on the relative benefits or losses they will earn.

They would not feel better off if their relative status does not change with rises in

wages. This suggests that individuals prefer to equate themselves to members of

their neighbors, colleagues, and relatives and are less interested in whether they

are better off than they were years ago.

d. Loss aversion

People tend to give more weight to losses rather than gains made by taking

a certain option (Ackert & Deaves, 2010). Many researchers predict that volatility,

uncertainty, complexity, and ambiguity are getting to become more and more

prevalent within the business world. To manage within the VUCA age businesses

must remember the changes that this type of environment can cause. A VUCA
environment can dismantle human resources and make them anxious, drill their

motivation, pose challenges to their career moves, make constant retraining and

reshaping a necessity, consume a great deal of your time and energy to fight.

Further, it can increase the probabilities of individuals making unfavorable

decisions. Thus, businesses need to substantially prepare themselves for the

uncertainties ahead (Content Team, 2020). Most investors clearly find investment

management hard in the VUCA world. The VUCA description for the environment

provides a richness concerning the investment problem where investors are faced

with higher volatility or that there's an opportunity for black swans. Volatility tells

about price mechanism but doesn't specialize in deciding with issues in

investment management. It’s highly important and relevant as a measure of risk,

but it is quite important to know the explanations and factors contributing to the

VUCA scenario (Gills, 2020). While this is one dimension, it is equally important

for businesses to understand how investors perceive this VUCA environment and

make sure they do not lose their confidence. This study tries to identify key

variables influencing investors in investment decision within the context of the

VUCA business environment (Ramkumar and Chitra, 2021).

Theoretical review for behavioral factors impacts the process of investors’

decision-making

Even though finance has been studied for thousands of years, behavioral

finance that considers human behavior in the financial world is a fairly new field.

Behavioral finance theories, which are based on psychology, trying to understand

how emotions and cognitive errors influence behavior of individual investors. In

the present scenario, behavioral finance is becoming an integral part of the

decision, since it heavily influences the performance of investors. They can be

improved by recognizing the prejudices and errors of judgment that all of us are

sensitive their performance. According to Ritter (2003, p.429), behavioral finance

is based on psychology which suggests that human decision processes are

subject to several cognitive illusions. These illusions are divided into two groups:

illusions caused by heuristic decision process and illusions rooted from the

adoption of mental frames grouped in the prospect theory (Waweru et al., 2008,

p.27). These two categories as well as the herding and market factors are also

presented as the following.

2.1 Heuristic theory

Heuristics are defined as the rules of thumb, which makes decision making

easier, especially in complex and uncertain environments (Ritter, 2003, p.431) by

reducing the complexity of assessing probabilities and predicting values to simpler

judgments (Kahneman & Tversky, 1974, p.1124). In general, these heuristics are

quite useful, particularly when time is limited (Waweru et al., 2008, p.27), but

sometimes they lead to biases (Kahneman & Tversky, 1974, p.1124; Ritter, 2003,

p.431). Kahneman & Tversky seem to be ones of the first writers studying the

factors belonging to heuristics when introducing three factors namely

representativeness, availability bias, and anchoring (Kahneman & Tversky, 1974,

p.1124-1131). Waweru et al. also list two factors named Gambler’s fallacy and

Overconfidence into heuristic theory (Waweru et al., 2008, p.27).

2.2 Prospect theory

Expected Utility Theory (EUT) and prospect theory are considered as two

approaches to decision-making from different perspectives. Prospect theory

focuses on subjective decision-making influenced by the investors’ value system,

whereas EUT concentrates on investors’ rational expectations (Filbeck, Hatfield &

Horvath, 2005, p.170-171). EUT is the normative model of rational choice and

descriptive model of economic behavior, which dominates the analysis of decision

making under risk. Nonetheless, this theory is criticized for failing to explain why

people are attracted to both insurance and gambling. People tend to under-weigh

probable outcomes compared with certain ones and people response differently to

the similar situations depending on the context of losses or gains in which they

are presented (Kahneman & Tversky, 1979, p.263). Prospect theory describes

some states of mind affecting an individual’s decision-making processes including

Regret aversion, Loss aversion and Mental accounting (Waweru et al., 2003,

p.28).

2.3 Market factors

DeBondt & Thaler (1995, p.396) state that financial markets can be

affected by investors’ behaviors in the way of behavioral finance. If the

perspectives of behavioral finance are correct, it is believed that the investors may

have over- or under-reaction to price changes or news; extrapolation of past

trends into the future; a lack of attention to fundamentals underlying a stock; the

focus on popular stocks and seasonal price cycles. These market factors, in turns,
influence the decision making of investors in the stock market. Waweru et al.

(2008, p.36) identifies the factors of market that have impact on investors’

decision making: Price changes, market information, past trends of stocks,

customer preference, over-reaction to price changes, and fundamentals of

underlying stocks.

2.4 Herding effect

Herding effect in financial market is identified as tendency of investors’

behaviors to follow the others’ actions. Practitioners usually consider carefully the

existence of herding, due to the fact that investors rely on collective information

more than private information can result the price deviation of the securities from

fundamental value; therefore, many good chances for investment at the present

can be impacted. Academic researchers also pay their attention to herding;

because its impacts on stock price changes can influence the attributes of risk

and return models and this has impacts on the viewpoints of asset pricing theories

(Tan, Chiang, Mason & Nelling, 2008, p.61). In the perspective of behavior,

herding can cause some emotional biases, including conformity, congruity and

cognitive conflict, the home bias and gossip. Investors may prefer herding if they

believe that herding can help them to extract useful and reliable information.

Whereas, the performances of financial professionals, for example, fund

managers, or financial analysts, are usually evaluated by subjectively periodic

assessment on a relative base and the comparison to their peers. In this case,

herding can contribute to the evaluation of professional performance because low-

ability ones may mimic the behavior of their high-ability peers in order to develop

their professional reputation (Kallinterakis, Munir & Markovic, 2010, p.306).

In the security market, herding investors base their investment decisions on

the masses’ decisions of buying or selling stocks. In contrast, informed and

rational investors usually ignore following the flow of masses, and this makes the

market efficient. Herding, in the opposite, causes a state of inefficient market,

which is usually recognized by speculative bubbles. In general, herding investors

act the same ways as prehistoric men who had a little knowledge and information

of the surrounding environment and gathered in groups to support each other and

get safety (Caparrelli et al., 2004, p.223). There are several elements that impact

the herding behavior of an investor, for example: overconfidence, volume of

investment, and so on. Waweru et al. (2008, p.37) identify stock investment

decisions that an investor can be impacted by the others: buying, selling, choice

of stock, length of time to hold stock, and volume of stock to trade. Waweru et al.

conclude that buying and selling decisions of an investor are significantly

impacted by others’ decisions, and herding behavior helps investors to have a

sense of regret aversion for their decisions. For other decisions: choice of stock,

length of time to hold stock, and volume of stock to trade, investors seem to be

less impacted by herding behavior. However, these conclusions are given to the

case of institutional investors; thus, the result can be different in the case of

individual investors because, as mentioned above, individuals tend to herd in their

investment more than institutional investors. Therefore, this research will explore
the influences of herding on individual investment decision making at the CSE to

assess the impact level of this factor on their decisions.

Relative
Positioning

Financial
Independence

Legal Environment

Investment
Qualifications
Decisions
Competence

Conceptual Framework

Independent Variables Dependent Variable

 Figure 1. Conceptual Framework

Statement of the Problem

This study aims to determine the factors affecting the investment decisions

among college faculty of Ramon Magsaysay Memorial Colleges.

Regulation
Specifically, the study sought answer to the following questions:

1. What is the
Source of level of implementation of factors affecting the investment
Information
decisions among college faculty of Ramon Magsaysay Memorial Colleges in
Risk
terms of:
Additional Income
1.1 Relative Positioning

1.2 Financial Independence

1.3 Legal Environment

1.4 Qualifications

1.5 Competence

1.6 Regulation

1.7 Source of Information

1.8 Risk

1.9 Additional Income

2. What is the extent of investment decisions?

3. Is there a significant relationship between the factors and the investment

decisions?

4. Among the factors, which have the most significant influence to Investment

Decisions?

Hypotheses

This study will test the following null hypotheses

Ho1 There is no significant relationship between relative positioning and

investment decisions.

Ho2 There is no significant relationship between financial independence and

investment decisions.

Ho3 There is no significant relationship between legal environment and

investment decisions.

Ho4 There is no significant relationship between qualifications and investment

decisions.

Ho5 There is no significant relationship between competence and investment

decisions.

Ho6 There is no significant relationship between regulation and investment

decisions.

Ho7 There is no significant relationship between source of information and

investment decisions.

Ho8 There is no significant relationship between risk and investment decisions.

Ho9 There is no significant relationship between additional income and investment

decisions.

Significance of the Study

The findings accumulated by this study may provide significant benefits to

the following stakeholders:

College Faculty. The result of the study will increase faculty's awareness on the

factors affecting investment decisions. Data gathered will help the faculty identify

the effectiveness of having concrete decisions on the worthiness of investing

practices which will leads them on their goals and objective.

Researcher. The result of the study will give them ideas in terms making research

about factors affecting the investment decisions among college faculty of Ramon

Magsaysay Memorial Colleges and will set as their guide to the future related

studies.

Academe. The result of the study will provide information to academe that would

be used in class discussion. This will set us guide by the educators who teaches

on the business-related courses to their studies on the Factors Affecting the

Investment Decisions and its corresponding effects to the institution.

The Community. The result will help the community to grow constantly for future

development; it can also be a guide for them in their investment decisions. It will

give them awareness to their knowledge towards the investment decisions that

will improve their conscious mind.

Future Researcher. The result of the study serves as a guide and reference for

the future researcher who also wants to study about Investment Decisions,
constructing the same research in a new context and location and re-assessing

and expanding theory framework or model.

The Institution. The result of this study will help the institution to further develop

the innovative excellence and quality education offered to the students. This study

will help the members of the institution as their basis in their investment decisions

in order to serve as their guide in their daily practices in investing finances.

Scope and Delimitation

The focus of the study is to determine the relationship between the factors

affecting the investment decisions among college faculty of Ramon Magsaysay

Memorial Colleges based on its level of implementation in terms of relative

positioning, financial independence, legal environment, qualification, competence,

regulation, source of information, risk, and additional income. Thus, the data to be

gathered are only limited from the college faculty of Ramon Magsaysay Memorial

Colleges, General Santos City branch, through the instruments that were utilized

to determine the relationship and influence of the independent variables of the

study, that includes relative positioning, financial independence, legal

environment, qualification, competence, regulation, source of information, risk and

additional income, and the dependent variable of the study, which is the

Investment Decisions.

Definition of Terms

Additional Income. Refers to as having enough income that would meet the

standard in terms of investing. In addition, it also reflects the qualifications of an

individual's decisions in doing investment practices. For this study, it refers to one
of the variables as factors affecting the investment decisions that the researcher

has considered.

Competence. Refers to the set of abilities needed to complete a task to the

required standard, including knowledge, attitude, and skills especially in investing

practices. For this study, it refers to one of the variables as factors affecting the

investment decisions that the researcher has considered.

Financial Independence. Financial Independence is defined as the status of

having enough income to pay one's living expenses for the rest of one's life

without having to be employed or dependent on others (Angelo Silva, 2020). For

this study, it refers to one of the variables as factors affecting the investment

decisions that the researcher has considered.

Investment Decisions. The investment decision is concerned with the acquisition

or disposal of investment assets. The assets may be real assets or financial

assets. Real assets include land, buildings or interests in land and buildings,

plant, machinery, stocks of material, etc., whilst financial assets are various forms

of securities, deposits, debt instruments, etc. Most investors possess investment

portfolios which are a mixture of financial and real assets and their interactions

within the portfolio cannot be ignored. For this study, it refers to one of the

variables as factors affecting the investment decisions that the researcher has

considered.

Legal Environment. Property rights, external and internal finance channels – key

conduits of the transmission mechanism from ‘legal environment’ to ‘investment’–

individually and interactively affect firms' decision to invest. Firms that perceive

secure property rights are more likely to invest in fixed capital. The interactions
suggest governments in this community would do well to pursue

investment/growth policies that slant heavily towards financial markets deepening

while not ignoring enhancement of legal infrastructures. Overall, property rights,

external finance, internal finance, firm size, and an export-orientation, are

important determinants of the investment decision (Tendai Gwatidzu and

Sheshangai Kaniki, 2020). For this study, it refers to one of the variables as

factors affecting the investment decisions that the researcher has considered.

Regulation. Defined as following certain regulations needed in order to achieve

smooth deliberation process when investing a fund for it is important to attain

security measures for protection against any illegal related actions. For this study,

it refers to one of the variables as factors affecting the investment decisions that

the researcher has considered.

Relative Positioning. Relative positioning means that individuals appear to

reflect less on their final income or asset and more on the relative benefits or

losses they will earn. They would not feel better off if their relative status does not

change with rises in wages. This suggests that individuals prefer to equate

themselves to members of their neighbors, colleagues, and relatives and are less

interested in whether they are better off than they were years ago (Ramkumar and

Chitra, 2021). For this study, it refers to one of the variables as factors affecting

the investment decisions that the researcher has considered.

Risk. Defined as inevitable risks are need to be taken when investing. More of

that, it also tests individual's knowledge about common risks that affect

investment decisions. For this study, it refers to one of the variables as factors

affecting the investment decisions that the researcher has considered.

Source of Information. Refers as gathering truthful information in order to adopt

good impact to assess the worthiness when investing. For this study, it refers to

one of the variables as factors affecting the investment decisions that the

researcher has considered.

Qualification. In investment processes, qualifications are one of the major factors

to verified that a certain individual is suitable for investing finances for personal

causes or for funding a business. For this study, it refers to one of the variables as

factors affecting the investment decisions that the researcher has considered.
 CHAPTER II

REVIEW OF RELATED LITERATURE AND RELATED STUDIES

This chapter reviews appropriate literature from referenced books, journals,

dissertations and other publications. It examines how relative positioning, financial

independence, legal environment, qualification, competence, regulation, risk, and

additional income affect the investment decisions. This chapter presents the

related literature and the related study.

Related Literature and Studies

Investment decisions in the economic theory

Headen and Lee (1974) studied the effects of financial market behavior

and consumer expectations on purchase of ordinary life insurance and concluded

that life insurance demand is inelastic and positively affected by the change in

consumer sentiments; interest rates playing a role in the short run as well as in

the long run. Lewellen et al. (1977) found that age, sex, income and education

affect investor’s preferences. Truett and Truett (1990) discussed the growth

pattern of life insurance consumption in Mexico and United States in a

comparative framework, during the period from 1964 to 1984. They concluded the

existence of higher income inelasticity of demand for life insurance in Mexico with

low-income levels. Age, education and income were significant factors affecting

demand for life insurance in both countries. Gupta (1994) made a household

investor survey with the objective to provide data on the investor preferences on

Mutual Funds and other financial assets. The findings of the study were more

appropriate, at that time, to the policy makers of mutual funds to design the

financial products for the future. Kulshreshta (1994) offers certain guidelines to the
investors in selecting the mutual fund schemes. Shankar (1996) points out that

the Indian investors do view mutual funds as commodity products and suggested

that the AMCs should follow the consumer product distribution model to capture

the market. Jambodekar (1996) conducted a study to assess the awareness of

Mutual Funds among investors, to identify the information sources influencing the

buying decision and the factors influencing the choice of a particular fund. The

study reveals among other things that income schemes and open-ended schemes

are more preferred than growth schemes and close ended schemes during the

prevalent market conditions. Sikidar and Singh (1996) carried out a survey with an

objective to understand the behavioral aspects of the investors of the north

eastern region towards mutual funds investment portfolio. The survey revealed

that the salaried and self-employed formed the major investors in mutual fund

primarily due to tax concessions.

Shanmugham (2000) conducted a survey of 201 individual investors to

study the information sourcing by investors, their perceptions of various

investment strategy dimensions and the factors motivating share investment

decisions. Rajarajan (2000) found an association between lifestyle clusters and

investment related characteristic. Soch and Sandhu (2000) have studied

perceptions of bank depositors on quality circles, customer’s complaint cell,

quality banking, telebanking, and customer meets in private banks. Study of La

Porta et al., (2000) reveals that a strong investor protection is a manifestation of

the security of property. Zietz (2003) and Hussels et al. (2005) has reviewed the

efforts of research to explain consumer behavior concerning the purchase of life

insurance for almost 50 years. The review of earlier studies concludes that bulk of
the empirical studies undertaken finds a positive association between increase in

savings behavior, financial services industry and demand for life insurance. There

are two detailed studies on the determinants of life insurance demand, one taking

into consideration only the Asian countries and the other based on 68 countries.

Kadiyala and Rau (2004) investigated investor reaction to corporate event

announcement. They concluded that investors appear to under-react to prior

information as well as to information conveyed by the event, leading to different

patterns; return continuations and return reveals, both documented in long-

horizon return. They found no support for the over-reaction hypothesis.

Rajeswari and Moorthy (2005) observed that investors demand inter-

temporal wealth shifting as they progress through the life cycle. Tesfastsion

(2006) argues, that privately motivated agents in an agent-based framework

include economic, social, biological and physical entities, and that agents are able

to communicate with each other by using different techniques. It is also important

to allow that artificial agents have learning capabilities and are able to develop it in

time. People differ in the level of their knowledge, capabilities, abilities, reasoning,

skill and experiences, emotions, social networks they are involved in, attitude

towards risk, time and different types of assets, wealth, luck and many other

characteristics, all of which are important elements in building one’s preferences,

which are so important for asset markets. Kumar Singh (2006) to analyze the

investment pattern of people in Bangalore city and Bhubaneswar analysis of the

study was undertaken with the help of survey conducted. It is concluded that in

Bangalore investors are more aware about various investment avenues and the

risk associated with that. And in Bhubaneswar, investors are more conservative in
nature and they prefer to invest in those avenues where risk is less like bank

deposits, small savings, post office savings etc.

Omar and Owusu-Frimpong (2006) stressed the importance of life

insurance and regarded it as a saving medium, financial investment, or a way of

dealing with risks. Chowdhury et al. (2007) have found in a survey that a good

number of people are choosing insurance companies with a view to earn higher

return on deposited money. Rajkumar (2007) identified the customers’ attitude

towards purchase of insurance products concludes that there is a low level of

awareness about insurance products among customers in India. Alinvi and Babri

(2007) are of view that customers preferences change on a constant basis, and

organization adjust in order to meet these changes to remain competitive and

profitable.

Sudalaimuthu and Senthil Kumar (2008), in their study, has made an

attempt to understand the financial behavior of mutual fund investors in

connection with the scheme preference and selection. An important element in the

success of a marketing strategy is the ability to fulfill investors’ expectation. The

result of these studies through satisfactory on the investors’ perception about the

mutual funds and the factors determining their investment decisions and

preferences. Manish Mittal and Vyas (2008) have tried to classify the investors on

the basis of their relative risk-taking capacity and the type of investment they

make. Empirical evidence also suggests that factors such as age, income,

education and marital status affect an individual's investment decision. This paper

classifies Indian investors into different personality types and explores the

relationship between various demographic factors and the investment personality

exhibited by the investors. Fatima Alinvi and Babri (2008) suggest that customers

change their preference according to their life circumstances and while certain

preferences are well-defined others can be inconsistent. In an increasingly

competitive environment, where insurance companies fight for the same

customers, having customer-oriented culture is extremely important not only to

retain customers but also acquire new ones.

The demand to plan an investment is influenced by the investor's past profit

experience and his guesses about future profit opportunities. Businessmen are

willing to invest in stocks as well, where their decision depends on their past

experience and the expected rate of sales. "In making his plans a businessman

takes account on the one hand of the expected rates of profit and the riskiness of

the various potential investment opportunities to him; and, on the other hand, of

the cost of finance. If the expected rate of profit exceeds the cost of finance by the

margin required to cover the risk element, the businessman would wish to

undertake the project" (Harcourt et al., 1967, p. 151).

The decision of the investor to invest is subjective. The decision depends

on the expected costs, the knowledge of the improved techniques and the risk

perception, which is entirely a subjective factor. Businessmen want to know the

investment project's pay-off period to decide whether they actually will make the

investment expenditure or not (Harcourt et al., 1967). For a good investment

decision, the investor needs to understand completely and correctly the possible

opportunities and these decisions should not be made in a rush. A wrong

investment decision can lead companies even to bankruptcy. It is necessary to

understand the basic ideas of the investment decisions to obtain the maximum
value from the appraisal process. In investment evaluation, the indicators should

be chosen regarding the specific nature of the project and the information held by

the decision maker (Avram et al., 2009).

Investment is an allocation of resources for medium or long term and the

expected effect is to recover the investment costs and have a high profit. Besides

financial resources, material and human resources are used as well. The

economic and financial environments influence investments, so expected results

are uncertain (Avram et al., 2009). Investment decisions are made after a

complete analysis of the investment project. One of the basic factors that

influence the decision is the risk factor of the investment. This risk exists because

it is uncertain that the cost of the investment will be recovered and a profit will be

gained.

Investment, investment decisions and investment behavior can be studied

from two points of view. Investment can be analyzed and studied empirically and

theoretically. The empirical and theoretical approaches of investment behavior do

not have much in common.

The historical and institutional considerations are essential in

understanding the investment behavior. Jorgenson notes that it is an incomplete

view that the empirical and theoretical researches are carried out separately. The

economic theory is used in possible explanations for the investment behavior.

This fact separates the econometric work from empirical generalization, which

hasn't been econometrically tested. It is important that econometric models of

investment behavior are tested in order to find out whether they perform

satisfactorily in the econometric work or not (Jorgenson, 1967).

 To understand investment behavior and investment decision, it is

necessary to study the theory of these and to analyze investment processes in

practice. The results of empirical analyses may help complete or correct the

theories regarding the investments, or simply understand them better. From the

other point of view, the correct and effective empirical analysis and research of

investments can be made based on the theories of investment behavior.

Jorgenson shows that, in the investment behavior study, progresses can

be made through "comparing econometric models of such behavior within a

theoretical framework" (Jorgenson, 1967, p. 131). He suggests that the theory of

investment has to be reconstructed and then, the theoretical and empirical work

can be combined. To provide a framework for the theory of investment behavior,

Jorgenson (1967) says that, for the theory, appropriate bases have to be chosen.

One basis could be the neoclassical theory of optimal capital accumulation, and

another would be the assumption that business firms maximize utility. The theory

of the firm moved from the profit maximization orientation to the utility

maximization. Jorgenson (1967) concludes that Simon ignores the econometric

theory, which is based on the neoclassical theory of firm.

The neoclassical theory of investment has an assumption that agents can

make numerical probabilities and probability distribution of the expected returns.

According to the Crotty (1992) paper, this can be characterized as "the triumph of

ideology over theory and fact". The neoclassical investment models assume that

the long-lived capital assets have a good resale market, and this makes the

decisions riskless. There is a small difference in a firm between owning and

renting their capital. In both cases, if the investments' effect is not convenient, the
firm can always resell the capital goods and then reinvest the liquid capital (Crotty,

1992).

In the neoclassical investment models, the firm is considered risk-neutral,

and the risk comes just from the cost of capital. From the view of the reversible

investment or of the liquid physical capital, the firm is risk-averse, which means

that, if the company makes any investment mistakes, those would be relatively

cost free. From the view of the illiquid capital though, the investment would be

irreversible and the mistakes would be costly. In this case, the risk- aversion

management is indicated (Crotty, 1992). In the formulation of the theory of

investment behavior, it is needed that the capital accumulation is based on the

objective of maximizing the utility of a stream of consumption. Utility maximization

of a consumption stream and getting capital services through acquisition of

investment goods are some of the essentials of the optimal capital accumulation

theory. Jorgenson notes that there are a few points of view and versions of the

neoclassical theory of the firm on capital theory. There are a few alternatives for

what the entrepreneur should maximize, but these can't be derived from

maximization of the utility of a stream of consumption under the defined

conditions, except the maximization of the present value of the firm, which is

consistent. The Fisherian analysis demonstrates that none of the formulas are

universally valid in the theory of investment decision.

3. Investments and risk

Risk is a complex issue, and it is essential that it is studied, understood and

identified in investment processes. Investment decision without risk analysis

should not be made.

 The theoretical and empirical analyses and understanding are equally

important. This is true for the study of risks of investments. The theory of risk is a

great starting point in collecting information and starting to analyze investments'

risks. Without existent theory there would be no effective practical analysis.

Empirical evidence collected form empirical researches can support the

theoretical assumptions, but sometimes it differs from theory. In the latter cases,

the analyst can study these derivations and use these results to update the risk

theories regarding that subject.

The economic analysis of investment is necessary to design and select the

investment projects that will result in the investor's welfare. The economic analysis

helps determine the project's impact on the entity undertaking the project (on the

environment, on society) and helps identify the investment project's risks and

sustainability. The economic analysis of the risk of the investment project is

important because of the future's uncertainty. The economic analysis of risk

identifies different variables, based on the costs and the benefits of the project

and this analysis can identify the factors that are creating the biggest risks for the

investment project. Uncertainty and risk are always present in an investment, if

that has more than one possible outcome (Belli, 1996). This uncertainty and risk

should be identified and analyzed. An investor can decide what to do regarding

this uncertainty based on the results of his analysis of risks, he can decide how to

manage these risks and whether to invest or not. In the economic theory, there is

a difference between risk and uncertainty; there are a few approaches regarding

the distinction and the relationship between these two concepts.

 Certainty is when all information about the future outcome is known; in

certainty, investment decision would be simple. In uncertainty however, the risk

factor enters in the investment decision, which means that the return from an

investment becomes a probability distribution of returns (Forbes, 2009).

The definition of uncertainty says that the future itself can be defined as

uncertain, but still, many times, the outcome of a future event can be predicted.

This can happen in a lower or higher degree, depending on how much information

is collected about previous similar or same kind of events. To narrow the margins

of uncertainty of a forecast, a deep understanding of the uncertainty of the

variable in question is needed. This understanding is influenced by the quality and

quantity of the information about the variable at that moment (Savvides 1994).

"Risk" was the first word to appear in European languages to address

uncertainty. That was around 1200 in Venice (rischio). Other words, such as

"uncertainty", only appeared much later" (Kast and Lapied, 2006, p. 2). Risk can

be studied from an economic perspective, if some facts are well described and

identified. These facts exist behind the risk; the risk-taking investors are willing to

avoid or reduce the risks and it is also a fact that the time period of the investment

should be known. "When a risk is well defined, economic calculus can investigate

money amounts to invest and expected payoffs from this investment to be

compared with future losses if it were not done" (Kast and Lapied, 2006, p. 3).

The developed economic theories are able to suggest methods and instruments

to analyze and manage risks. In the economic analysis of risks, there are two

directions: the individual decision theory and the market study. Because there are

uncertainties about the future, there is a possibility that risks will appear. "The
economic meaning of risk: variability of an investment's future returns (losses

and/or gains)" (Kast and Lapied, 2006, p. 90). Someone is willing to take a risk

because expectedly there is something to gain.

Risk is the possibility to be exposed to losses. The determination of risk is

based on a long experience and information that allows the estimation of

likelihood consequences (Ionita, 2001). In risk theory, there is an interesting

expression, used by Horwitz (2004); this expression is the risk culture. The risk

culture is "the orientation of an organization to risk taking. Having a fundamental

understanding of risk integrated into the investment process" (Horwitz, 2004, p.

265).

Frank Knight's notion of risk and uncertainty brings the chaos theory into

economics. Unpredictability or indeterminism in physics occurs in two forms.

There are two statistical laws in physics, the quantum mechanics and chaos

theory, which have captured the economists' attention. Chaos indeterminism

corresponds to risk and quantum indeterminism to uncertainty. These two theories

differ from each other. Knight separates the 'real' theory of indeterminism to

uncertainty. These two theories differ from each other. Knight separates the 'real'

theory of probability from the 'ignorance' theory of probability. The real doctrine of

probability expresses the uncertainty, which refers to the agent's ability of self-

defining. This process is the basis of Simon's procedural rationality, the opposite

of the neoclassical substantive rationality (Khalil 1997).

The ignorance theory signifies the risk, the humans' chance probability.

Herbert Simon's ignorance theory is named bounded rationality, which makes the

rule-following behavior more efficient. Keynes affirms that the future can't be
presented as a measurable risk. In his view, the uncertainty of people comes from

the fact that one's expectation is based on the others' expectation, so the

individual behavior aims to be alike with the average opinion. With Leonard

Savage's subjective probability theory, Knight's subjective risk can be transformed

into an objective risk. In the certainty situations, there is perfect certainty and

imperfect certainty. In the latter case, the incomplete information is the subjective

risk, and the complete information is the objective risk (Khalil, 1997).

J. P. Chavas (2004) defines risk as the representation of any situation,

where some events are not known with certainty ahead of time. This suggests that

time is a fundamental characteristic of risk, but through learning some information

that is not known now, it can be known in the future; therefore, risk has a temporal

dimension (Chavas 2004). Risks have different characteristics at every point of

the time period. In defining risk, it is essential to consider the time-factor.

In Markowitz's view, investment risk is the variability of the expected

returns. Du Troit (2004) presents risk as conceptually complex, because risk can't

be defined in only a single way. Risk is the "adverse subset of the set of outcomes

of a particular action or process" (duToit 2004, 21). To get a useful definition,

some factors should be added to it, which will start to increase this definition's

complexity. In the case of investment risk, one component is the horizon of the

investment. This horizon can't have a clear specification without knowing exactly

how long the term is or without describing the outcome of the investment. This

outcome can be a gain or a loss of money, or a loss term is or without describing

the outcome of the investment. This outcome can be a gain or a loss of money, or

a loss of an asset or others. "And then there is the matter of what makes an
outcome count as "adverse", and how we develop some appropriate metric of

adversity. This issue is often characterized as ascribing a utility to all the possible

outcomes, but this is not easy" (duToit, 2004, p. 21). This whole process of

defining risk is complex. In the operational definition of risk, the quantitative

approach of the concept is used in a useful way. (du Toit, 2004)

Risk is multi-faceted. For example, at the terminal point of an investment

risk, the possibility of a loss can be studied, but also the size of this loss when it

does occur. Because risk is multi-faceted, this requires more ways of risk

measurement and risk management. The theory of risk is deeply multi-

disciplinary, including disciplines like economics, psychology, statistics,

mathematics etc. (du Toit, 2004).

J. P. Chavas (2004) determines three main factors, which contribute to the

existence of risky events. First, risk exists because some casual factors of events

can't be controlled or measured precisely. Second, risk exists because people's

ability to process information is limited. Bounded rationality is the analysis of

decision rules under some limited ability to process information. For example, an

investment's outcome is uncertain, because the investor has a limited ability to

process information about the payoff of all available strategies. Risky events are

very common, because no one is able to process all the information available.

The third factor, which contributes to the existence of risk, is the cost of the

information. Humans can process a lot of information, but they won't use them all,

even though obtaining and processing useful information may be costly. This can

be a monetary or a nonmonetary cost. Information is worth being obtained and

processed, if its benefits are greater that its costs. This means that costly

information contributes to the prevalence of risky events (Chavas, 2004).

Risk theory is important and useful, but risk analysis is always specific to a

particular case; within each case it has to be investigated, what risk means to the

investor in that given context. Risk theory plays a guiding role in risk analysis. To

choose the appropriate risk measurement tools, it is necessary to identify what

counts as risk. The theory of risk analysis shows the way the risk measurements

can be applied. This means that risk theory is more of a practical guide then a

description. To be able to manage risk effectively, good risk measures are

needed. The stages of risk analysis identified in this paper are: to define risk,

measure and monitor risk and then manage risk (duToit, 2004).

Eeckhoudt et al. (2005) says that risk means to be sensitive to new

information arrivals. New information may be useful for better decisions. Good

information affects the decision maker's welfare and the optimal risk management.

Information may arrive during the investment period and this can make the

investor make some additional decisions regarding his investment. Information at

some point of the period may be useful, but referring to the horizon of the

investment, it may be negative information (Eeckhoudt, 2005).

An investment period has some determinate terms before the actual

investment, during the investment process and after the process ends.

Ex post means after the event, after the investment for example. This

refers to whatever happened in a period in the past. Ex-ante means before event,

before the investment, and refers to the beginning of the period of the investment.

The ex-ante investment expenditure is the planned investment expenditure and

the ex-post one is the actual investment expenditure. In an equilibrium situation,

these two, ex ante and ex post, investment expenditures are equal (Harcourt,

1967).

Information is valuable. Information has a sensitiveness on the ex-post

decision to the signal. A good signal can make an investor make a better decision.

The investor should decide regarding his investment risk based on the signal he

receives. Information can be significant if some of the signals will reverse the

decision, or information can be useless. The value of the information is coming

from the way it is used by the decision maker regarding the investment. An

informed decision maker can always act like a non-informed one by ignoring the

arrived information. (Eeckhoudt 2005) "This shows once again that the value of

information comes from the ability of the informed decision maker to adapt the

decision to the circumstances in a more efficient way" (Eeckhoudt, 2005, p. 128).

Good information, which helps in the better understanding of the

investment's risks, and processing that information even, helps reduce the risks;

sometimes this information can be worth a lot. The investor has to decide what

kind of information he needs to make the best possible decision. My opinion is

that in a risky investment, where the outcome of the project can be more than

one, there is no perfect information, or enough information to make the investment

riskless. The investor has to decide two things regarding the information

collection. One is how much effort, time, money etc. he is willing to sacrifice for

additional information, and the second thing is that the investor has to evaluate

the situation whether those sacrifices are worth it or not to get more information.
The value of the information should be bigger than the amount of the sacrifices to

get that.

The future can be viewed as a whole and represented in a static

framework, or the reactions to the future events considering the information

arrivals can be forecasted in a dynamic approach. In the decision-making

process, the information arrivals make decisions change (Kast and Lapied, 2006).

In an investment decision, the investor has to decide to make the

investment at that moment, when he doesn't have enough knowledge about the

future outcome, or to wait to get additional information regarding the unknown

future. If the investor decides to wait for new information, that may be costly to

him because of the lost revenues.

The investment decision maker has to decide, whether to act immediately

or wait without knowing whether the additional information will confirm the level of

risk or not (Eeckhoudt, 2005).

According to Eeckhoudt (2005), most of the investments are irreversible;

for example, investments in a new factory or building can't be disinvested. Once

something it is introduced to an environment that usually can't be eliminated.

There is a connection between information and irreversibility. Irreversible

investments may cause a problem in a situation, when some new information will

influence the decision maker and make him regret the investment decision. To

prevent this kind of regret, the investment decision maker should be flexible and

he should make his decisions flexible. Flexibility is essential to manage

investment risks (Eeckhoudt, 2005).

 Present an example, where the flexible decision's importance is outlined.

An investment is made to build a power plant, which can function with oil or gas.

The investor has to decide, what type of power plant to invest in. The question is

whether the gas or the oil will have better price in the future, and then a decision

has to be made on which kind of power plant should be built. The other option is

to build a power plant, which can function with both. This is more expensive to

build, but it creates the option of flexible decision-making (Amram, Kulatilaka and

Henderson, 1999). This example shows that the investment's value comes from

the flexibility to respond to uncertainty. In this case, additional information

regarding the price of the gas and oil will be supporting the investment and will not

be regretted.

The real and financial options make it possible that the owner can benefit

from the potential of an opportunity and in that time can control the risks. This

way, investments are more dynamic, because the investment decisions today

make follow-on investments possible in the future. The option thinking is valuable

in the long term, because it makes investments flexible and this way, in a longer

period of time, the investor has the possibility to change his mind several times; if

losses happen, those are limited to the initial investments, so there is the

possibility for follow- on investments (Amram, Kulatilaka and Henderson, 1999).

The risk of an investment is smaller, if that investment is made in the real

options way, because even if the unpleasant outcome will happen, there is a

possibility for follow-on investments. In this case, the loss is not as big as if it was

a traditional investment decision. The flexible effect of the first investment decision
makes the going on possible, because the investment can be continued by new

investment decisions, depending on the additional information regarding the risks.

4. Decision making and risk- a behavioral and neuroeconomic approach

Peterson (2009) explains that the risk and uncertainty cannot be neglected,

when decision theory is discussed. The distinction among the decision making

under risk, ignorance and uncertainty, according to Peterson, is that the decision

maker knows the probability of the possible outcomes in the case of risk, but in

the case of ignorance there is an unknown probability or even no probability at all.

The term uncertainty is used for ignorance or referring to both risk and ignorance

(Peterson, 2009).

According to Loewenstein et al. (2001), decision making under risk and

uncertainty is one of the biggest topics discussed by both psychologists and

economist and, therefore, it is an active interdisciplinary research topic. This topic

was studied from a consequentialist perspective, meaning that people make their

decision based on assessing the consequences of the possible outcomes of the

alternative choices. The expected utility type of studies does not look at feelings

as an integral part of the decision-making process. From this point of view,

decision making theories say that risky decision makings are cognitive activities.

But people's reaction to risk happens on two levels, a cognitive evaluation and an

emotional reaction. These two levels of reaction are interrelated, but mostly are

determined differently (Loewenstein et al., 2001). Binmore (2009) presents that

the difference between decision making under risk and decision making under

uncertainty is that, in the first case, unambiguous probabilities are available in the

insurance companies. This behavior cannot be explained by the expected value

maximization, but it can be explained with the expected utility maximization and

this behavior suggest the risk-averse type of the decision maker. A risk-averse

decision maker's expected utility function is concave, meaning that the decision

maker has a decreasing marginal utility. The opposite behavior is the risk-seeking

type of decision maker, whose expected utility function is convex, with an

increasing marginal utility. A mixed type of decision makers exists as well, who

may buy insurance but are still gambling. This mixed behavior might suggest that

the decision maker is in neither of the two previous types, or they are just

behaving differently in different situations and circumstances. The risk- neutral

type is used, when a person is maximizing the expected value and the expected

utility with a linear function Gilboa, 2010).

Rick and Loewenstein (2008) say that there are many behavioral

evidences, which are inconsistent with the expected utility model. People evaluate

decision outcomes, based on whether those are gains or losses, rather than

based on what changes they make in their final welfare. According to Rick and

Loewenstein (2008), several researches show that the utility is not only defined

over the realized outcomes, but people compare the actual outcome with the

expected outcome for that decision as well.

Loewenstein et al. (2001) propose a theoretical framework named the risk

as feelings hypothesis. The risk as feelings hypothesis says that, in decision

making, people respond to risky situations too highly influenced by emotions.

Traditional economics says that decision making involving risks is made based on

cognitive evaluation, but because the outcome involves feelings and emotional

reactions, feelings are present in the moment of decision as well. The emotional
reaction to risks can differ from the cognitive evaluation of the same risks. But

these two can have complementary roles in decision making processes. The

emotional reaction can have an input in risky decision making, playing an

informational role. But often emotions can lead to reactions and behaviors

different from which the decision maker sees as being the best action

(Loewenstein et al., 2001).

Barberies and Thaler (2003) present the behavioral approach to investment

decision making, referring to people's beliefs. Investors might have some beliefs,

which are wrong, like when they seem to believe that the mean dividend growth

rate is more variable than it actually is and investors' exuberance pushes the

prices up relative to the dividends. Here, the existence of the representativeness

can be noticed, mostly for low numbers. For example, investors see many good

periods on the stock market and they might believe that the earnings' growth will

continue to be high, adding to the return volatility. These beliefs are based on

public information. Investors might have some beliefs based on private

information. They might become overconfident about the private information they

gathered. The overconfident investor will push the price up to high, if his private

information is positive, adding to return volatility. Representativeness in this case

is present, when the investor is framing beliefs on his past returns (Barberies and

Thaler, 2003).

According to Rustichini et al. (2005a), the behavior of people in risky,

uncertain and ambiguous situations has psychological components as well. They

consider situations risky, when people are able to reasonably attach a numerical

probability to each outcome or event. Uncertainty refers to situations when people

cannot precisely and uniquely define a numerical probability of an outcome.

According to Rustichini et al. (2005a), the Knightian distinction between risk and

uncertainty is that in case of risks the probability distribution over a possible

outcome is known, due to calculation or frequency estimation, depending on the

nature of the situation. And in the case of uncertainty there is no obvious list of

equally likely alternatives or the possible outcomes are unique. This distinction

disappears in the classical theory of choice under uncertainty, which is the

Subjective Expected Utility (SEU). (Rustichini et al., 2005a) "In SEU theory, it is

assumed that the subject is able to provide a subjective probabilistic estimate of

the relative probability of each event. Once he has done that, the evaluation of a

lottery (or, more generally, a state-contingent payoff function) is the same under

risk or uncertainty: It is the expected value, computed with respect to this

probability. Therefore, in terms of the Knightian distinction, according to SEU

theory all uncertainty can be reduced to risk." (Rustichini et al., 2005a, p. 258)

Rustichini et al. (2005a) say that this distinction might still have importance in the

mental process of subjects, on how they make their estimations. Presenting the

Ellsberg's paradox, they show that people are not behaving according to the SEU

theory rather they are ambiguity averse or ambiguity lovers. The Ellsberg's

experiment is a test, where subjects have to choose between lotteries. These

lotteries are described as outcomes of a draw of balls from an urn. The

composition of an urn is 90 balls, from which there are 30 red balls and 60 black

and yellow balls, but their number are not specified. The subjects have to choose

between two lotteries, and then between another two lotteries. According to the

subjects' responses, this experiment shows that the SEU theory is violated, and
that the subjects did not differentiate between risky and ambiguous situations

according to a SEU decision maker. They formed their beliefs on some

expectations showing ambiguity aversion or love (Rustichini et al., 2005a).

According to Rustichini et al. (2005b), the decision maker, when he has to

decide in a risky or ambiguous situation, is using several areas of his brain. They

focus on ambiguous cases, when the decision maker does not know the exact

value of the probability of certain outcomes, as in risky situations. The focus is to

look at the emotional side of the decision making. "Moreover, patients with large

lesions that incorporate one of these areas (the orbitofrontal cortex) treat

ambiguous and risky choices differently from normal subjects. [...] However, a

large number of these areas (located in the temporal, parietal, and prefrontal

lobes of the brain) deal with the estimation of the values of the options, which

suggests that the decision process integrates emotional and computational

components" (Rustichini et al., 2005b, p. 1625).

"Decision making often occurs in the face of uncertainty about whether

one's choices will lead to benefit or harm. The somatic-marker hypothesis is a

neurobiological theory of how decisions are made in the face of uncertain

outcome. This theory holds that such decisions are aided by emotions, in the form

of bodily states, that are elicited during the deliberation of future consequences

and that mark different options for behavior as being advantageous or

disadvantageous" (Bechara et al., 2006, p. 260). Bechara et al. (2006) present an

experiment testing the somatic- marker hypothesis with the Iowa Gambling Task,

developed by Antoine Bechara. In the experiment the subjects have to choose

between four decks of cards, which provide different levels of rewards and
punishments. Two of the desks provide low rewards and low punishments and the

other two provide high rewards and high punishments. The subjects by

consistently choosing from the low reward and low punishment decks (designed

to be "advantageous" decks) are led to a net gain of money, and subjects by

consistently choosing from the high reward and high punishment decks (designed

to be "disadvantageous" decks) are led to a net loss of money. In the experiment,

normal individuals chose the advantageous and disadvantageous decks equally,

and later they switched to the advantageous ones, because of the high

punishments. But subjects with the vmPFC damage tended to continuously

choose from the disadvantageous decks, being insensitive to negative

consequences (Bechara et al., 2006). During the experiment, subjects were

tested for emotional reaction with "the measurement of skin-conductance

response (SCR), an automatic index of emotions" (Bechara et al., 2006, p. 261).

According to Bechara (2004), "the key idea of the somatic marker hypothesis is

that decision-making is a process that is influenced by marker signals that arise in

bioregulatory processes, including those that express themselves in emotions and

feelings" (Bechara, 2004, p. 33). The key fact in the somatic marker hypothesis is

that the decision-making process in risky and uncertain situation is guided by

emotions.

Miu and Crisan (2011) test emotion regulation in an experiment, where the

subjects are using the cognitive reappraisal or the expressive suppression against

the framing effect during gambling tasks. They find that via emotional regulation

the framing effect was successfully modulated, and the cognitive reappraisal

reduced significantly more the framing effect, than the expressive suppression.
The research also shows that subjects using reappraisal had higher rationality

scores than subjects using expressive suppression (Miu and Crisan, 2011).

A literature review about factors affecting investment decisions of working

women of emerging nations: Special reference to Indian metro cities

Successful investment strategy is affected by the level of knowledge an

individual investor possesses about different investment instruments. The

knowledge of the relationship between risk and return along with the knowledge of

industrial sectors, economic indicators, company’s performance, their analysis

techniques, portfolio management techniques, etc., also affect the investment

decision of individuals. The source of information regarding investment avenues

also guides the investment decisions. One of the most important factors affecting

personal investment is the availability of disposal funds. Apart from all these

factors, invested money should be convertible into cash in the hour of need and

this is an important factor, which affects personal investment. The success of

every investment decision has become increasingly important in recent times.

Making sound investment decision requires both knowledge and skill. In today’s

rapidly changing financial environment, it is critical that individuals not only protect

and enhance their current financial resources, but also prepare for future security

and against loss of income. This requires careful planning and prudent

management of one’s financial assets. The existing literature on selection criteria

of investment avenues from the perspective of working women is relatively

untouched. Although research is limited, there are few evidences on the relative

importance of the various perception affecting factors. Some related evidences

have been summarized below. Newton and Cottrell (2002), in their research
study, discussed the status of female investors in first Welsh and English

commercial joint stock banks. Economic and financial observers found that widow,

spinsters and gentlemen comprised a substantial part of London joint stock banks.

It was found that females had become more prominent shareholders. They were

becoming more versatile shareholders. On the similar premise, research work by

Budhwar et al. (2005) focused on the status of women in management in the new

economic environment. Study revealed that prior liberalization women did not get

sufficient employment opportunities to showcase their talent and skills. But, after

liberalization and globalization, they got better opportunities and got chance to

show their skills and talents at various management positions. Study also

revealed that earlier there were gender stereotypes and multiple role expectations

from women, which were barriers to women’s career progression. But today’s

reality is that now women have made advancements and are taking benefits from

all human rights, equality and shattering myths about gender-competency gaps.

Similar results were also shared in the research work of Vasagadekar (2014).

Duflo (2011) in his paper had put spotlight on relationship between women

empowerment and economic development. Findings of the study mention that

there are pertinent changes in women decision-making after getting more power

and they are taking more wise decisions as compare to men. It also focuses on

societal efforts in bringing equity between men and women. Now more women are

self-employed and are not under undue influence of men for decision-making;

resultantly investment decisions are also taken by them easily and wisely.

A study by Buddhapriya (2009) focused on work-life balance by women

professionals and its impact on career decisions. Study revealed that women are
rising as professionals due to their strong commitment towards work as well as

family, due to which now women can be seen at every managerial level of

organization. It was also revealed through the findings of the study that even their

marital status does not affect their professional life now. According to research

work of Sharma (2019), women investors have a fair knowledge about investment

game and Factors like fund characteristics, creditability, convenience and fund

family have high impact on perception of investors. These factors give them the

required boosting in the investment process. Veluchamy and Thangaraj (2020) in

their research work mentioned that investment pattern among the women

executives was mainly determined by background like age, nativity, level of

education, marital status, nature of family, family size, number of earning

members per family, number of educated persons per family, designation,

personal income and family income.

Additionally, Kappal and Rastogi (2020) revealed that women

entrepreneurs consider investment as a long-term instrument; they are risk averse

and quite conservative. They are willing to take risks in business but not for

making investment decisions. The reasons for this low-risk behavior include lack

of time to understand investments and lack of knowledge about various products.

The research asserts that if they spend time to be informed about the nuances of

investment instruments, they are likely to take risks for their investments as well.

The interviews also reflect that women entrepreneurs often mimic the investment

behavior of their parents.

Research paper of Kansal and Zaidi (2015) focuses on investment

behavior of women in India. This paper discusses that women are more risk
averse than men; they are less confident about their investment decision as

compare to men. This paper reveals various factors which effect women

investment decision like return, long-term growth, risk, liquidity and retirement

income. Mostly, women invest in bank deposits, post office deposits, gold, silver

and government securities, which are comparatively safer instruments.

Bahl (2012) concluded that younger women have already developed their

investment plans. Women working in private sector are comparatively more

interested in investing their funds. Working women invest their money in

insurance plans as they are not willing to take risk to attain gain and want to have

a safe future. According to Gaur, Sukhija and Sharma (2011), female investors in

earlier years tend to display less confidence in their investment decisions and

hence have lower satisfaction levels. There are two essential factors that

influence the investment decision of any investor, namely return and risk

(Glogger, 2008). Baker, Hargrove and Haslem (1974) expressed that risk and

total return have a positive relationship but less than the relationship between risk

and capital expectation. The relationship is reduced by the negative risk-dividend

relationship. Investors with lower risk look for high dividends while investors with

higher risk look for higher capital appreciation. Warren, Stevens and McConkey

(1990) realized that although the demographics are used commonly to segment

the market for both financial and economic services, lifestyle attribute assists in

defining individual investor’s financial needs in a more precise manner. Riley and

Chow (1992) found that whenever the age is increasing, the preference for

avoiding risk increases. Study done by Davis (1976) focused on the decision-

making within households and the way economic decisions get affected due to
family members. The various findings of the study revealed that variety by product

category, variety within the product category, associated risk and information

source are the factors affecting decision-making. Hedlund (2000) in his paper

discussed about safety regulations, risk compensation and individual behavior in

risky businesses like investment. This study suggested that various amounts of

risk compensation have occurred in response to some safety measures but not in

response to others. Findings include factors that lead to overall guidance is

visibility, control, motivation and effect. He concludes that people should never

over predict benefits. Research work of Awais and Laber (2016) has focused on

two major factors namely financial literacy and investment expenditure, and their

impact on risk tolerance and investment decisions. Decision-making regarding

investment is a very important factor for an investor. This study revealed that

degree of risk, which an investor can absorb, depends on his knowledge. It was

also revealed that higher experience leads to higher investment risk and investors

have to chase risk in their financial decisions.

Sharma and Douglas (2017) in their paper discussed about factors influencing

women’s preference in investment decision-making. According to study,

investment decision is being affected by various factors like psychographic and

demographic factors. Investors can be same in all aspects but their perception

can be dissimilar towards different investment plans. Research work of Chandra

and Kumar (2019) discussed about the factors influencing Indian individual

investor behavior. Behavior of an individual investor is encouraged by different

factors like psychological, heuristics and biases.

CHAPTER III
RESEARCH METHODOLOGY

This chapter presents the method of research, subject and locale of the

study, respondents and key informants, research instrument and procedures for

data gathering, and statistical treatment in conducting the study.

Research Design

The researcher used descriptive correlational research. This is to describe

the relationship among the variables rather than to infer cause and affect

relationships. Descriptive correlational studies are useful for describing how one

phenomenon is related to another in situation where the researcher has no control

over the independent variables, the variables that are believed to cause or

influence the dependent or outcome variable (Kowalczyk, 2015).

After which, to answer the query of the study, the researcher prepares a

survey questionnaire to determine and evaluate the level of implementation of the

determinants affecting the Investment Decisions in terms of the following: relative

positioning, financial independence, legal environment, qualification, competence,

regulation, source of information risk, and additional income. The survey

questionnaire will also determine and evaluate the level of influence of the

determinants to investment decisions, and to identify which determinants has the

most significant influence to investment decisions. The questionnaire contains

questions that enable the respondents to rate and to evaluate their respective

view. The researcher will use weighted mean and multiple regression analysis as

a statistical treatment. All gathered data were used as the bases in providing

conclusions and recommendations of the study.

 Factors Affecting the Investment Decisions Among College
Faculty of Ramon Magsaysay Memorial Colleges

Level of Implementation of Research Methodology

the Factors Affecting the
Investment Decisions Research Design

Descriptive-Correlational
Relative Positioning
Research Locale
Financial Independence
Ramon Magsaysay
Legal Environment Memorial Colleges

Qualification Respondents

Competence College Faculty

Sampling Technique
Regulation
Random Sampling
Source of Information
Product Features Research Instruments
Risk
Product Features Survey Questionnaire
Additional Income
Product Features Data Gathering Procedure
Extent of Investment
Decisions Statistical Treatment

Significant Weighted-mean
Relationship between
the factors and Pearson Correlation Coefficient
Investment Decisions
Multiple Regression Analysis

Improved the Factors Affecting the Investment Decisions Among

College Faculty of Ramon Magsaysay Memorial Colleges
Figure 2. Research Design

Research Locale

The locale of the study will be conducted in Ramon Magsaysay Memorial

Colleges located at Pioneer Avenue, General Santos City. The said institution is
known for its vision which is RMMC is an institution of innovative development

and excellence. Also, their mission is that RMMC is committed to realize human

potentials through holistic education. Ramon Magsaysay Memorial Colleges is

committed to their goals and objectives for all which is to provide holistic

academic programs aligned with industry needs and standards. Create,

disseminate, and utilize researches for the benefit of the community. Establish a

highly visible community outreach program. Lastly, collaborate with working

networks, linkages and consortia. RMMC is an institution which utilizes and

appropriate to their core values: love of God, integrity, patriotism, service, and

excellence.

Respondents

The respondents of the study we're the college faculty of Ramon

Magsaysay Memorial Colleges. A total of 100 college faculty we're selected and

involved in the study to represent the general population in Ramon Magsaysay

Memorial Colleges.

Sampling Technique

With an uncountable number of college faculty or Ramon Magsaysay

Memorial Colleges in General Santos City, the researcher come up with valid and

relevant sampling technique to conduct the study.

Probability simple random sampling will be utilized in this study where it

provides unbiased selection of potential samples. This type of sampling method

increases credibility even when it uses small sample sizes from a larger

population that cannot be handled conveniently (Cohen & Crabtree, 2006). The

use of a randomized sampling strategy, even when identifying a small sample can
increase credibility, yet providing a probability to propose representativeness or

the ability to generalize. This sampling technique will be used to select College

faculty members who will be involved and surveyed.

A sample size of 384 respondents was determined using Cochran’s

Formula. A 20% non-response allowance will be determined to increase the

sample size. The respondents are randomly selected and the population is as

follows:

No. Respondents Population Sample 20% Sampling

Technique
Non-

response

Random
1 Customers ∞ 384 77
Sampling

Total ∞ 384 461

Table 1. Determination of Population Sample Size

The data for the table were obtained with the aid of the following formula

presented below:

Keys: n0 = sample size; Z = z-score; p = estimated proportion of the population; q

= 1 minus the p; e = margin of error

For the 20% non-response allowance:

384 x 120% = 460.8 or 461

Research Instrument
 This study utilizes survey questionnaires as the research instruments.

Survey questionnaire will include indicators and statements that are obtained and

grounded on the review of related literature and studies as well as on the theories

that this research is anchored to.

The survey questionnaire will consist questions, specifically a set of

checklists that would determine the level of implementation, the extent, the

significant relationship, and the significant influence of factors affecting the

investment decisions among college faculty of Ramon Magsaysay Memorial

Colleges.

Data Gathering Procedure

Before administering this study, the researcher will ensure that a signed

letter will be attached to the questionnaire asking for permission to the selected

college faculty since they are involved in conducting this study as the researcher

considered them as the study’s respondents. Once the grant of approval, the

researcher will then administer the survey questionnaire to the respondents. The

researcher will utilize printed questionnaire as a method of gathering the data.

The printed questionnaire will also be provided with instructions on how to

completely answer each indicator. With the use of the physical survey

questionnaire, this would enable the researcher to collect and gather data faster.

The data that will be gathered will be analyzed and interpreted to generate

relevant result that would help complete this study about the factors affecting the

investment decisions among college faculty.

Statistical Treatment

The study will utilize weighted mean, Pearson correlation coefficient, and

multiple regression analysis in determining the factors affecting investment

decisions among college faculty of Ramon Magsaysay Memorial Colleges.

First, the weighted mean is a type of mean that is calculated by multiplying

the weight associated with a particular event or outcome with its associated

quantitative outcome and then summing all the products together. It is a

procedure in combining the mean of two or more groups of different sizes; taking

the sizes of the groups into account when computing the overall mean. Thus, it

can be calculated as follows:

Where: W= the weighted mean; x= observed values; w= allocated weighted

value.

Second, multiple regression analysis. It is used for prediction and

forecasting, as well as to infer causal relationships between the independent and

dependent variables. To use regressions for prediction or to infer causal

relationships, justification on why existing relationships have predicted power for a

new context or why a relationship between two variables has a causal

interpretation (Cook & Weisberg, 1982). However, it is primarily used when the

researcher wants to predict the value of a variable based on the value of two or

more variables. It can be calculated as follows:

Where: Yi= dependent variable; f= function; X i= independent variable; =

unknown parameters; ei= error terms.

 Third, Pearson correlation coefficient, also known as Pearson’s r, is a

measure of linear correlation between two sets of data. It is used to determine the

relationship, instead of difference, that is between two quantitative variables,

interval or ratio, and the degree to which the two variables coincide with one

another; that is, the extent to which two variables are linearly related. This is

simply explained through changes in one variable correspond to changes in

another variable. It can be calculated as follows:

Where: r= correlation coefficient; x i= values of x-variable in a sample; =

mean of the values in x-variable; yi= values of y-variable in a sample; = mean of

the values in y-variable.

Scale Response Anchor Interpretation

5 Strongly Agree Very High Implementation

4 Agree High Implementation

3 Moderately Agree Average Implementation

2 Disagree Low Implementation

1 Strongly Disagree Very Low Implementation

Table 2. Factors Affecting the Investment Decisions Rating Scale

The scale presented above will be utilized to measure the agreement on

the level of implementation of the presented factors that affecting the investment

decisions among college faculty. Thus, scale boundaries and its corresponding

response anchor are interpreted below:

4.20 – 5.00 Strongly Agree, represents the College faculty with a very high

implementation of the presented Factors Affecting Investment Decisions.

3.40 – 4.19 Agree, represents the College faculty with a high implementation of

the presented Factors Affecting Investment Decisions.

2.60 – 3.39 Moderately Agree, represents the College faculty with an average

implementation of the presented Factors Affecting Investment Decisions.

1.80 – 2.59 Disagree, represents the College faculty with a low implementation of

the presented Factors Affecting Investment Decisions.

1.00 – 1.79 Strongly Disagree, represents the College faculty with a very low

implementation of the presented Factors Affecting Investment Decisions.

Scale Response Anchor Interpretation

5 Strongly Agree Highly Engaged

4 Agree Engaged

3 Moderately Agree Moderately Engaged

2 Disagree Not Engaged

1 Strongly Disagree Highly Not Engaged

Table 3. The Extent of Investment Decisions Rating Scale

The scale presented above will be utilized to measure the agreement on

the extent of customer engagement in social commerce websites. Thus, scale

boundaries and its corresponding response anchor are interpreted below:

4.20 – 5.00 Strongly Agree, represents the responses of respondents as they

are being highly engaged on the implementation of the presented Factors

Affecting the Investment Decisions among College Faculty of Ramon Magsaysay

Memorial Colleges.

3.40 – 4.19 Agree, represents the responses of respondents as they are being

engaged on the implementation of the presented Factors Affecting the Investment

Decisions among College Faculty of Ramon Magsaysay Memorial Colleges.

2.60 – 3.39 Moderately Agree, represents the responses of respondents as they

are being moderately engaged on the implementation of the presented Factors

Affecting the Investment Decisions among College Faculty of Ramon Magsaysay

Memorial Colleges.

1.80 – 2.59 Disagree, represents the responses of respondents as they are being

not engaged on the implementation of the presented Factors Affecting the

Investment Decisions among College Faculty of Ramon Magsaysay Memorial

Colleges.

1.00 – 1.79 Strongly Disagree, represents the responses of respondents as they

are being highly not engaged on the implementation of the presented Factors

Affecting the Investment Decisions among College Faculty of Ramon Magsaysay

Memorial Colleges.
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