Volume 27, Issue 12 (3-2021)
RJMS 2021, 27(12): 152-162 |
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Research code: A-10-5638-1
Ethics code: 1234
Clinical trials code: A-10-5638-1
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Najafli H, Kheirollahi F, Namamian F, Ghanbari M. Study the relationship between innovative accounting method and risk tolerance level with mental accounting in Iranian society. RJMS 2021; 27 (12) :152-162
URL: http://rjms.iums.ac.ir/article-1-6619-en.html
URL: http://rjms.iums.ac.ir/article-1-6619-en.html
Razi University of Kermanshah , f.kheirollahi@razi.ac.ir
Abstract: (2272 Views)
Background & Aims: Mental accounting is one of the new categories in accounting. Mental accounting is the study of how people interpret information to make decisions based on their analysis of the effects of events in their minds. The purpose of this study was to investigate the relationship between innovative methods and the impact of psychological factors and the level of risk tolerance with mental accounting in Iran.
Methods: The research method was descriptive correlation. The statistical population of the study included scientific experts and investment professionals who were selected from among academics and capital market professionals in a targeted and accessible manner. The research instrument was a researcher-made questionnaire whose reliability was 0.86 using Cronbach's alpha. Correlation statistical method was used to analyze the data.
Results: The results showed that there is a positive and significant relationship between innovative accounting methods and the level of risk tolerance with psychological factors and mental accounting in Iran (p≤0.05).
Conclusion: It seems that mental accounting requires initiative and high risk and in this regard, in order to externalize the research, it is suggested that more research be done in this regard. The topic of behavioral sciences in finance and investing field is one of the new topics that has recently emerged in investment and financial sciences. Behavioral finance can be seen as a paradigm in which financial markets are studied using models that eliminate the two main and limiting assumptions of the traditional paradigm, ie, maximizing expected utility and complete rationality. As such, concepts such as mental accounting that are addressed in the behavioral finance field have attracted more and more attention from researchers (Kian et al., 2017). Mental accounting is an economic concept first introduced by Thaler (1985). This concept implies that individuals divide their current and future assets into non-transferable and separate shares. In other words, individuals allocate different degrees of utility to each asset class. It is clear that the effect of such prioritization of utility over assets appears to be on consumer behavior. In mental accounting, the usual problem is maximizing expected returns by limiting the maximum likelihood of failure in achieving threshold returns. Investors may behave as risk avoids in the subjective accounts in the lower backing layers, while in the top layers they behave in a risk-seeking manner. Based on this behavioral error, individuals open a separate account in their mind in financial decisions to evaluate each decision and try to examine the consequences of each decision (positive or negative) on their own. As such, they are left out of their overall set of decisions (like portfolio) and may make decisions that do not maximize their wealth (Oula et al., 2017). Given the background of irrational reactions in the Iranian capital market as well as investors' non-compliance with classical financial models, this study attempts to investigate the relationship between mental accounting with technical analysis and prospect theory. In order to achieve the main objective of the study, technical analysis with 14 sub-criteria and prospect theory with 3 sub-criteria were considered that these criteria have presented in the section of the introduction of the research tool. The main research hypotheses suggest that there is a positive and significant relationship between technical analysis and mental accounting in Iranian society and between prospect theory and mental accounting in Iranian society. Expectancy theory suggests that individuals use mental accounting when making financial decisions. The practical implication of this is that, for example, when investing, they do not seek to optimize their investment portfolios, but rather buy the shares separately without regard to their relationship to each other. Mental accounting considers the way that investors evaluate outcomes. For example, do investors evaluate the whole results as a set (total) or individually?
A few simple examples will reveal the dimensions of this behavioral bias (and some related bias). Many of us invest large amounts of our money in places that, for example, have a 17% return. This investment is in the hope of buying a car in the near future, or at the same time with investing (which may be in a bank or government bonds) receive a loan to buy a home from the bank, which we have to pay at 25% of its efficiency. not interesting? The fact is that we have a separate account in mind for a car purchase, and a separate account for a home purchase, and you try not to count the profits and losses of them together. In times of trouble, we usually do not dare to make many financial and investment decisions.
A well-known example of this bias for investors active in the Iranian capital market are people who are saddened by losses in one share, screaming for brokers, advisers, land and time. These shareholders have forgotten that the same broker bought them another stake, which not only compensated for the loss of the first investment but also made a very good profit overall. Many shareholders have not yet become accustomed to looking at their portfolio total when evaluating performance. bias mental accounting not only causes us to lose immense sight of our investment portfolio, but also to build a relationship while enjoying the benefits of investing (or purchased goods or services) and the pain and discomfort of spending to get that good or service. This leads us to make decisions that are inconsistent with maximizing wealth (Liu & Chiu, 2015). Baker and Chui Yi (2017) examined the impact of psychological factors on investor decision making in the Malaysian stock market. The findings show that overconfidence, conservatism, and availability bias have significant effects on investor decision making. While behavior is mass like has no significant effect on investor decision making. Also, the results of their studies have shown that psychological factors are influenced by one's gender. Delisle et al (2016) in a study on prospect theory, mental accounting, and bargain pricing stated that prospect theory argues that the human decision-making process tends to combine reference points and incorrect weighting of events with low probability of occurrence. The results of their surveys show that market investors of the right to trade prevent prices from rising and create a probabilities weighting function similar to the one presented by the prospect theory. When companies have relatively high or low implicit volatility, biases lead to inefficient prices for the bargain authority. In a joint study of Prospect theory and mental accounting, Ferris et al. (2014) showed that investors receive higher utility when dividing benefits multiple times. This study shows a strong and positive relationship between the frequency of interest payments and company value which by studying frequency changes of paying profits this relationship has been examined. They have shown in numerous empirical evidence-based studies that the existence of non-behavioral factors affecting the frequency of interest payments so remains a strong relationship between the frequency of interest payments and company value that has been shaped by behavioral factors such as mental accounting. Kian et al. (2017) examined this problem in a study entitled evaluation of the Impact of mental accounting on investor behavior from financial reporting perspective. The results indicate a moderating effect of the loss report on the relationship between net profit and stock price, which is expected to support the theory of mental accounting in the case of profit and loss.
Meskini and Mirzaei (2015) examined the behavior of investors in investment decisions in a study called mental accounting (a different approach to decision scenarios). The results of numerous surveys show that individuals open a separate account in mind to evaluate each decision in their financial decisions and try to investigate the consequences of each decision (positive or negative) on their own. As such, they are left out of their overall set of decisions and may make decisions that do not maximize their wealth. Individuals also evaluate decisions, not only by making decisions separately but also changing the type of decision and the time it takes to spend and profit has an effect on the outcomes of the decision. The main focus of previous studies has been on the functioning of financial markets in order to identify new ways of investing so that investors can achieve maximum returns with minimal risk (Fama, 1965; Lintner, 1965). A new and different discipline of literature has shown that emotional and psychological factors such as fear, greed, and self-confidence also play a significant role in investment decisions (Statman et al., 2006; Lo et al., 2005; Shefrin, 2002; Daniel et al., 1998). In the present study, through analyzing the responses of experts, analysts and market participants, it is examined whether technical analysis and prospect theory have a significant impact on the application of mental accounting.
Traditional literature has assumed that investors' investment decisions are based on their rational expectations of updating their beliefs based on new information and maximizing the expected returns for a given risk level. In this regard, Krishnamurti (2009) has pointed to the limited ability of fundamental and technical analysis to determine the fair value of stocks. Therefore, there is a clear need to examine and evaluate changes in value, investor behavior, and factors influencing investment decisions. Thus, behavioral finance emerged to explain less rational changes in stock value and the influence of emotions and behavioral factors on investor decisions (Barberis and Thaler, 2003). Most previous studies have focused on the markets of developed countries in North America, Europe, or East Asia, and limited studies have been conducted on the behavioral finance of West Asian and North African countries (Metawa et al., 2018). Thus, the present study examines the relationship between prospect theory and technical analysis with the Iranian mental accounting model.
Methods: The research method was descriptive correlation. The statistical population of the study included scientific experts and investment professionals who were selected from among academics and capital market professionals in a targeted and accessible manner. The research instrument was a researcher-made questionnaire whose reliability was 0.86 using Cronbach's alpha. Correlation statistical method was used to analyze the data.
Results: The results showed that there is a positive and significant relationship between innovative accounting methods and the level of risk tolerance with psychological factors and mental accounting in Iran (p≤0.05).
Conclusion: It seems that mental accounting requires initiative and high risk and in this regard, in order to externalize the research, it is suggested that more research be done in this regard. The topic of behavioral sciences in finance and investing field is one of the new topics that has recently emerged in investment and financial sciences. Behavioral finance can be seen as a paradigm in which financial markets are studied using models that eliminate the two main and limiting assumptions of the traditional paradigm, ie, maximizing expected utility and complete rationality. As such, concepts such as mental accounting that are addressed in the behavioral finance field have attracted more and more attention from researchers (Kian et al., 2017). Mental accounting is an economic concept first introduced by Thaler (1985). This concept implies that individuals divide their current and future assets into non-transferable and separate shares. In other words, individuals allocate different degrees of utility to each asset class. It is clear that the effect of such prioritization of utility over assets appears to be on consumer behavior. In mental accounting, the usual problem is maximizing expected returns by limiting the maximum likelihood of failure in achieving threshold returns. Investors may behave as risk avoids in the subjective accounts in the lower backing layers, while in the top layers they behave in a risk-seeking manner. Based on this behavioral error, individuals open a separate account in their mind in financial decisions to evaluate each decision and try to examine the consequences of each decision (positive or negative) on their own. As such, they are left out of their overall set of decisions (like portfolio) and may make decisions that do not maximize their wealth (Oula et al., 2017). Given the background of irrational reactions in the Iranian capital market as well as investors' non-compliance with classical financial models, this study attempts to investigate the relationship between mental accounting with technical analysis and prospect theory. In order to achieve the main objective of the study, technical analysis with 14 sub-criteria and prospect theory with 3 sub-criteria were considered that these criteria have presented in the section of the introduction of the research tool. The main research hypotheses suggest that there is a positive and significant relationship between technical analysis and mental accounting in Iranian society and between prospect theory and mental accounting in Iranian society. Expectancy theory suggests that individuals use mental accounting when making financial decisions. The practical implication of this is that, for example, when investing, they do not seek to optimize their investment portfolios, but rather buy the shares separately without regard to their relationship to each other. Mental accounting considers the way that investors evaluate outcomes. For example, do investors evaluate the whole results as a set (total) or individually?
A few simple examples will reveal the dimensions of this behavioral bias (and some related bias). Many of us invest large amounts of our money in places that, for example, have a 17% return. This investment is in the hope of buying a car in the near future, or at the same time with investing (which may be in a bank or government bonds) receive a loan to buy a home from the bank, which we have to pay at 25% of its efficiency. not interesting? The fact is that we have a separate account in mind for a car purchase, and a separate account for a home purchase, and you try not to count the profits and losses of them together. In times of trouble, we usually do not dare to make many financial and investment decisions.
A well-known example of this bias for investors active in the Iranian capital market are people who are saddened by losses in one share, screaming for brokers, advisers, land and time. These shareholders have forgotten that the same broker bought them another stake, which not only compensated for the loss of the first investment but also made a very good profit overall. Many shareholders have not yet become accustomed to looking at their portfolio total when evaluating performance. bias mental accounting not only causes us to lose immense sight of our investment portfolio, but also to build a relationship while enjoying the benefits of investing (or purchased goods or services) and the pain and discomfort of spending to get that good or service. This leads us to make decisions that are inconsistent with maximizing wealth (Liu & Chiu, 2015). Baker and Chui Yi (2017) examined the impact of psychological factors on investor decision making in the Malaysian stock market. The findings show that overconfidence, conservatism, and availability bias have significant effects on investor decision making. While behavior is mass like has no significant effect on investor decision making. Also, the results of their studies have shown that psychological factors are influenced by one's gender. Delisle et al (2016) in a study on prospect theory, mental accounting, and bargain pricing stated that prospect theory argues that the human decision-making process tends to combine reference points and incorrect weighting of events with low probability of occurrence. The results of their surveys show that market investors of the right to trade prevent prices from rising and create a probabilities weighting function similar to the one presented by the prospect theory. When companies have relatively high or low implicit volatility, biases lead to inefficient prices for the bargain authority. In a joint study of Prospect theory and mental accounting, Ferris et al. (2014) showed that investors receive higher utility when dividing benefits multiple times. This study shows a strong and positive relationship between the frequency of interest payments and company value which by studying frequency changes of paying profits this relationship has been examined. They have shown in numerous empirical evidence-based studies that the existence of non-behavioral factors affecting the frequency of interest payments so remains a strong relationship between the frequency of interest payments and company value that has been shaped by behavioral factors such as mental accounting. Kian et al. (2017) examined this problem in a study entitled evaluation of the Impact of mental accounting on investor behavior from financial reporting perspective. The results indicate a moderating effect of the loss report on the relationship between net profit and stock price, which is expected to support the theory of mental accounting in the case of profit and loss.
Meskini and Mirzaei (2015) examined the behavior of investors in investment decisions in a study called mental accounting (a different approach to decision scenarios). The results of numerous surveys show that individuals open a separate account in mind to evaluate each decision in their financial decisions and try to investigate the consequences of each decision (positive or negative) on their own. As such, they are left out of their overall set of decisions and may make decisions that do not maximize their wealth. Individuals also evaluate decisions, not only by making decisions separately but also changing the type of decision and the time it takes to spend and profit has an effect on the outcomes of the decision. The main focus of previous studies has been on the functioning of financial markets in order to identify new ways of investing so that investors can achieve maximum returns with minimal risk (Fama, 1965; Lintner, 1965). A new and different discipline of literature has shown that emotional and psychological factors such as fear, greed, and self-confidence also play a significant role in investment decisions (Statman et al., 2006; Lo et al., 2005; Shefrin, 2002; Daniel et al., 1998). In the present study, through analyzing the responses of experts, analysts and market participants, it is examined whether technical analysis and prospect theory have a significant impact on the application of mental accounting.
Traditional literature has assumed that investors' investment decisions are based on their rational expectations of updating their beliefs based on new information and maximizing the expected returns for a given risk level. In this regard, Krishnamurti (2009) has pointed to the limited ability of fundamental and technical analysis to determine the fair value of stocks. Therefore, there is a clear need to examine and evaluate changes in value, investor behavior, and factors influencing investment decisions. Thus, behavioral finance emerged to explain less rational changes in stock value and the influence of emotions and behavioral factors on investor decisions (Barberis and Thaler, 2003). Most previous studies have focused on the markets of developed countries in North America, Europe, or East Asia, and limited studies have been conducted on the behavioral finance of West Asian and North African countries (Metawa et al., 2018). Thus, the present study examines the relationship between prospect theory and technical analysis with the Iranian mental accounting model.
Type of Study: Research |
Subject:
Clinical Psychiatry
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