Impact of Professionalism and Decision Making Styles on Level of Investors Acceptable Risk

Abstract

Rational investors try to decide based on risk and return. Acceptable level of risk for investor may be affected by investor’s professionalism and style of decision making. Patterns of decision making suggest cognitive styles and educated behaviors arising from fundamental differences in individuals in collecting information and propensity to use the information in decision making. All investment decisions are made based on the relationship between risk and expected returns. This study examined the effects of professionalism on cognitive style and propensity to risk of investor, and controlling his decision making pattern at the same time. This study is a quasi-laboratory one for hypotheses testing, and a research of descriptive-deductive type. This study uses a single year cross section data in 1392, with statistical sample of 150 individuals from the population of professional and non- professional analysts. Findings showed that there is significant positive relationship between professionalism and investors’ risk perception and risk propensity. Also, other findings indicated that there are not significant differences in the average financial and economic knowledge of investors for the investors with guideline style, analytical style, cognitive style and behavioral style for decision making. In addition, gender of investors does not affect investors’ acceptable rate of risks.

Keywords

• cognitive styles
• risk perception
• risk propensity
• expected returns
• professionalism