Moderating Effect of Risk Affinity on Contribution of Personality Towards Financial Decisions

Abstract

Traditional finance entails that all the decision taken by an investor are rationale and unbiased. In short, as per traditional finance desired return of an investor is dependent on the amount of risk that a certain individual is willing to bear. Emphasis in traditional finance in totality is based on the risk taking and the level I rate of return and these factors are interdependent and are directly proportional to each other. Which means that if any given investor would certainly like to maximize the output level of his or her investment. But in reality, each individual in different from one another. Especially their personality traits play a major role in overall decision making. Some individuals are extrovett by nature and like taking bold decisions, while others are on the completely opposite spectrum. These individuals avoid making bold decisions and their every step in decision making is very calculated and thought out. Furthennore, apart from personality each individual possesses a different risk appetite meaning all of the individuals respond differently to risk. For that reason, sample was selected and afterwards questionnaires were floated. After collecting all of the relevant data and putting it through some rigorous testing, we concluded that all dimensions of the personality do tend to affect an individual's ability to make a certain financial decision. In this study Cronbach Alpha was calculated and afterwards SEM was deployed to verify the reliability of the overall model. Process Macro was deployed to check the moderating effect of risk affinity. By using Process Macro it was concluded that risk affinity act as a strong moderator. It was found out that the each of the personality dimensions has a significant impact on financial decision making.