Measurement of Conformity to Behavior Finance Concepts and Association with Individual Personality

Abstract

Behavioral Finance is the study that links social and psychological concepts to investments. Studies have now shown that investment is not purely a rational decision but has roots in social sciences, such as sociology and psychology. Many paradoxes that have been unexplained by classical finance are now being deciphered using behavioral finance concepts. Since behavioral finance has social-psychological roots, the tendency to behave as predicted by it must have personality dimensions. This paper attempts to measure a tendency for behaving as per behavioral finance predictions and link it to personality. The authors have constructed a measurement instrument from Shefrin’s examples of behavioral finance and have used the ‘Big Five’ as the personality measurement instrument. The paper finds two dimensions of the tendency; each of them linked to experience and personality dimensions.

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