CHAPTER NO 1 INTRODUCTION

1.1 Background The rapid growth in business and technology has increase the concern and attention on risk concept. Dictionary definition of risk is the chance of actual return on investment different to expected. It comprises of possibility of losing some portion or all actual investment. In risk assessment, firms engage themselves to evaluate the risks round their investment / business. Frequency to which individual takes or avoid various kinds of risks is known as risk propensity. The most comprehensive research carried out by Sitkin and Pablo (1992) suggested two major inputs to risk-taking are risk propensity and risk perception. Risk propensity conceptualized as dispositional tendencies, past experience and cognitive inputs. Definition of risk propensity is the tendency of a decision maker either to take or to avoid risks Sitkin and Pablo (1992, p. 12). Risk propensity has vital implications on individual level risk behavior. In organizational respective, superior understanding of risk could contribute considerably better risk management (Bernstein, 1996). Two concepts are of risk propensity highlighted in literature. The first concept relate to prospect theory, which suggest that risk is asymmetric about some reference point. Prospect-theory has initiated many research studies conducted into risk taking and risk preference but the major area of the theory is concerned with individual level of risk taking. People will risk averse when find themselves in the domain of gain. On other hand, seek risk when in loss situation (Kahneman & Tversky, 1979). Therefore, it 1

indicates that risk is situational factor and people take and avoid under some circumstances. Second concept suggests that individual factor could influence on risk taking behavior and could relate to trans-situations, such as risk propensity, personality etc. (Zuckerman et al., 1964). Risk propensity has rather more individual characteristic as compared with situations such as sensation seeking like high-risk actives and compulsive gambling (Zuckerman & Kuhlman, 2000 and Zuckerman et al., 1964). The empirical studies on inter correlation measures risk in difference areas of decisionmaking and found weak correlation between different risk measures. However, study on managerial decision-making indicates preclude pattern of strong possibility of internal relationship among different risk measures showed consistent results and classified as risk seekers (MacCrimmon and Wehrung, 1986). Likewise, people inconsistent to take or avoid risk regarded as weak propensity but the domain of risk decision could vary. Evident from study, possibility is for risk propensity on both general and specific domain (Salminen & Heiskanen, 1997). Risk analysis includes both assessment and management of risk (Haimes, 2006). Previous researches describe risk perception as degree of risk associated with situation. The perception based on the probability occurring of loss as well as potential size of loss occur (Mellers and Chang, 1994). Experience and investment information as determinant of risk behaviors by using risk propensity and perception as mediators to establish a model which influence decisionmaking behavior but Financial educational deficiency leads to negative management outcomes (Huhmann and McQuitty, 2009). Educational programmers are effective when they able to differentiate between financially literacy and capacity as they facilitate to improve familiarity with financial concepts (Chou, Huang and Hsu, 2010) described. This

study suggests that educational sources increase personal-financial- materials enable to process information to improve capacity and literacy for advanced for research. Does the personal-financial-material have any affect in improving capacity? On the other hand, investor perceived frame a situation based on his experiences with financial instruments. The Pakistani economy articulated as high degree of uncertainty and turbulence due to political, economic, social, and institutional changes that during the last 12 years. Aftermaths of Financial crises of 2008 cause serious losses to investors. Embedded risk in financial products, current economic turmoil, and recession shake the attitude of investor towards investment through out the world. It is imperative for investor to have appropriate financial knowledge to process information. Familiarity and sufficient experience with financial products improve personal financial material. Investors classify past experiences as anchor and record them to form a frame for interpretation of their perspective behavior. Results indicate that propensity to risk ineffective by gender but perception of risk varies with their personal experience and financial framing (Williams, Zainuba and Jackson, 2003). Lack of financial experience and high expectation for returns is a common risk attitude; demands that influencing factor of investor for higher expected return may reassess. Economic fluctuations shape up individuals behavior to take level of risk and had a enduring effect on their attitude and empirical results suggests that individuals differ in level risk based on personal experience over their lives and used this experience for higher expected returns (Malendier & Nagel, 2011). Historically, financial proficiency or numeracy, arise from two interconnected construct: financial capacity (ability to process information) and financial literacy (past knowledge of financial concepts). Both

financial literacy & financial capability are interrelated terms includes the following: prior knowledge, cognitive capacity, expertise and expected outcomes but it guides individual to improve their personal finance material to create a situational frame in expectation of tall returns (Hu et al., 2007). Financial ability directly concern with financial management outcomes of individual issues of investors related to saving, borrowing, & taxes; indirectly involve with higher expected returns (Huhmann and McQuitty, 2009). Past performance and information produce expectation for returns on the same level as happened in the past; the historical outcome is a main predictor variable, positive experience lead to high-risk propensity (Kathleen Byrne, 2005). Self reported information is important to measure the risk attitude to judge their abilities to explain the risky behavior and provide behavioral validity (Dohmen, Falk, Huffman and Sunde, 2011). Chou, Huang and Hsu (2010) suggest investor who suffer loss keep in mind past memories while making new investment in addition to other sources of information for risk assessment. Investor tolerate product with lower potential profit and accept those product with high risk but match his preference and balance in his view. Investor behavior is situational; it changes depending upon the circumstances they face considered traditionally as risk averse all time. Investors choose investment risk accordance to their own preferences. However, investor act in accordance with their preference on different available financial products from simple to the most complex on depending upon the degree of risk provided choice of investment with possible risk and return match their preference. At the time of investment, investor make a situational frame based on his personal material already retained through experiences. Factor that forms investor behavior includes expert/peer/family advice, past experience, personal

financial material, new and other source of information. These factors not only affect investors perception to risk but also build formation of risk attitude to develop potential outcomes. Investor who suffered loss keeps in mind while making new investment decision. In this study conducted with investors to look at investor behavior towards intrinsic risk and expected returns. 1.2 Problem Identification The Pakistani economy articulated as high degree of uncertainty and turbulence due to political, economic, social, and institutional changes that during the last 12 years. Financial crises of 2008 cause serious losses to investors. Implanted risk in financial products, recession, and current economic turmoil has shaken the attitude of investor towards investment through out the world. It is imperative for investor to have appropriate financial knowledge to process information. Familiarity and sufficient experience with financial products improve personal financial material. Lack of financial experience and high expectation for returns is a common risk attitude; demands that influencing factor of investor for higher expected return may reassess. Therefore, it is needed that a proper education programs / training should be provided to investor to assess the situation and interpreted the information. Lack of skill to interpreted information investment decision often simulated or imitation of others rather than logically based. 1.3 Statement of Problem Thus, it is necessary for investor to have personalized financial material to interpret information available in the market using in experience to maximize his expected returns. Therefore, a study is carried out to mitigate referral decision by investor. Consequently,

the statement is Financial education are necessary in addition to past experience to obtain expected returns under optimistic and pessimistic situations.

1.4

Objectives of the study

The purpose of study to investigate the influence of personal experience, personal finance material and risk frame on risk propensity to get higher expected returns. As in, the past research has hardly ever tied the financial-literacy construct how consumers learn and process information and use prior knowledge. To deal with this shortcoming, we relate consumer psychology theories of learning, processing, and knowledge to the ability to acquire, understand, and use financial information and financial concepts. We conceptualize a model of financial numeracy rooted in theoretical construct of prior knowledge, financial information, and personalized financial material. There are few researches on subject matter to describe a model to evaluate attitude of an investor towards risk. Establish the significance of risk propensity and risk perception as mediator in experience, information and personal finical material to comprehend expected returns. The main objectives are: To determine the risk propensity behavior of experience investors To explore the risk propensity between investor has sufficient academic financial concept and no personalized financial material and Influence of information on investors To establish the effect of financial education material on investment

1.5 Significance of the study A number of investment plans and investor has been fail because of lack of sufficient concept of financial. Those who have sufficient personalized financial material along with experience are successful. Therefore, great need is felt for general public

understand the reason for success and sustain, no such works has been done previously. Resultantly, importance so preset research has been recognized. In addition, many i firm relied heavily on humans; their performance is depended upon experience and individual who has personalized financial material concept. Obtaining financial knowledge through educational programs not only encourage the investor to participate logically in investment decision but also enhance their expect returns. Effectively and clear

understanding financial concept plays important role to achieve goals and give chance to maximize the expected returns. People of all part of society subject of life get benefit Therefore, implications of research are universal in approach. Educational programs are major externally sourced to answer the question of investment. The lack of education literacy or deficiently has negative management outcomes (Hilgert and Hogarth, 2003). It helps investor to difference among investment products and interpret information to take right decision. Investor with poor financial-numeracy is incapable to interpret information and they can only improve their skill to get familiarity with financial

concepts. Financial-educational-programs increase the familiarity with concept, enhance financial literacy, boost efficiency, improve capacity and knowledge and (Alba and Hutchinson, 2000). Moreover, economic benefits are also associated such as high

earning with low chance of failure will be achieved. As it is an important factors that normally affects the success or failure of investors

1.7 Rationale of the Study The scope of present research is broad and fit to all-purpose investor of Pakistan. The research is comprised upon primary-data collection. Primary data will be collected form general investor, mangers executives and investment consultants using structure questionnaire-survey. Pre-test is carried out the current study with structure questionnaire with rectification as applied in previous researches. Likert Scale of five points will be used in the questionnaire.

CHAPTER NO 2 LITERATURE REVIEW AND THEORETICAL FRAMEWORK

2.1 Empirical Literature Ability of consumer defines attitude to risk and behavior in risk-associated decisions. Risk perception defined as evaluation of risk in uncertainty (Sitkin and Pablo, 1992). It is determined from important factors such as question asked by investor, familiarity with management/organization and financial market. Both risk propensity and perception have strong negative relationship with each other. As prospect theory ignored the effect of former experience of investor over prospect investment behavior (Chou, Huang and Hsu; 2010). Sikin and Pablo (1992) risk behavior model develop suggests that past experience, personal preference and social influences individual risk perception. According to Sitkin and Weingart (1995) extend the model risk behavior of Sikin-Pablo by adding risk propensity and risk perception as mediator for decision-making. Risk involves potential outcomes that will occur or influences outcome (March 1978). Risk is a multi-dimensional complex construct, which is difficult to measure (Sitkin and Pablo, 1992). Behavior that influence the decision in response to risk such as identification of choices, alternatives and other action in response to risk (Pablo et al., 1996). Risky decision is relevant with personal involvement (Williams and Wong, 1999). Williams, Zainuba and Jackson (2003) suggested that high positive affect decision maker view situation optimistically but unwilling to take risk while high negative affect individual presume risk related gains negatively to avoid risk.

Literature suggested two main components of financial numeracy (i.e., financial capacity and literacy). Atkinson et al. (2006) described financial capabilities; as managing, future planning, selecting, using, familiarity and, financial literacy; as stay informed. However, Personal Finance Research Centre (2005) elucidated as knowledge and management financial behavior but mostly was collecting, understanding, and interpreting information (Willis, 2008). Both terms are interrelated often interchangeable used but capacity is a process to obtain knowledge regarding financial concept whereas the financial literacy is memory based. Comprehension suffered when demand increased for processing information exceeds over cognitive capacity (Hu et al., 2007). Individual differs in cognitive abilities, less capable can learn, improve, and develop skills to get benefits more efficiently (Huhmann and McQuitty, 2009). Skills also increase efficiency in financial capacity but this ability depends upon how efficiency extracts information from available sources. Although attaining proficiency is quite difficult (Willis, 2008) but each step towards improving financial capacity, improve ability to collect valuable information and then apply this gather information for financial management. According to Fama (1970) rational investor updates their investment commitment on receipt of change in any new information. Rapid decision-making maximizes the value of assets held with investor and adjusts their deviations through arbitrage to reasonable price value. Number of empirical researches identified that EMH fail to support efficient market as it often ignores psychological attributes of investor process of decision making. Value-Function suggests that the facing gain or loss cause difference in risk attitude among investors (Kahneman and Tverskey (1979). In prospect of gain, investor ensures

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stability in profit and tends towards risk averse while facing loss, investor take more risk get away from the situation. Thus, the attitude towards risk changes in accordance with change in situation that was traditionally considered as risk averse all the time. 2.1.1 Experience with Financial Instruments Experience influence on previous knowledge, increased financial literacy, develops skills and processing informational (Hutchinson, 1987). Past financial experience reduces behavioral risk associated with weak financial numeracy rather than academic education (Hilgert and Hogarth, 2003). Financial product purchases often transacted in absence of sufficient information rather based on experience or evaluation process. Expertise and experience provide awareness to assess future financial risks (Chou, Huang and Hsu; 2010). Personal experiences affect awareness and risk assessment, which eventually affect behavior. The people facing uncertainty and doubt in existing information draw their conclusion and depend upon their intention, attention, memory process, and interpretation (Sitkin and Pablo, 1992). Atkinson et al. (2006) described that the consumers who held risky debts more than half of their monthly earnings decline with growing age. In contrast, consumers who obtained risk free debt or accumulated savings increased with age. Past investment, experience develops the frame for risk awareness, propensity and risk transfer that influences behavior of future decision making. High experience Investor has relatively risk tolerance, they make high-risk portfolio and is an imperative factor that influences behavior (Corter and Chen, 2006). Kathleen (2005) suggests that there is positive relationship between risk and pas investment experience and successful investment experiences enhance investor tolerance towards risk.

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2.1.2 Personal Finance Materials personal-finance-materials comprises of teaching material such as audio/visual aids, instructions or text presentation designed to improve financial concepts, which may be self /externally selected by the consumer (Huhmann and McQuitty, 2009). Although educational programs considered as major source of externally selected material but some firms also tell consumers regarding financial product offerings. Financial educational programs suitable to answer the questions of financial product as investment, insurance, credit cards, and taxes often improve financial literacy program are very popular. The common users of these programs are new business starter, women unemployed and students (Elliehausen et al., 2007). Some groups of professionals unexposed to educational financial programs despite occurrence of low financial results because they considered having sufficient education (Brown and Taylor, 2008). The lack of education literacy is negative management outcomes (Hilgert and Hogarth, 2003). Educational programs are effective when it helps individual to differentiate between financial literacy and capacity. The individual with poor financial numeracy are incapable to interpret information and they can improve their skill through theses programs to familiarize financial concepts. Financial-educational-programs increase the familiarity with concept, boost efficiency, improve capacity, store knowledge and enhance financial literacy (Alba and Hutchinson, 2000). Consumers with low cognitive efforts have less cognitive experience and therefore, they always engage in searching process information (Hu et al., 2007). Huhmann and McQuitty (2009) described that consumer with less natural financial capacity use their limited processing skill to comprehend efficiently financial information. Decline in financial numeracy despite of increasing effort of increase

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financial programs suggests that these programs have failed to provide financial material to meet the current needs of audience (Huhmann and McQuitty, 2009). Consumer only seeks and process information when they have capable to process it. Lusardi and Mitchell (2007) described that one out of fifth programs actually managed to provide financial outcomes and exposure to these programs will eventually improve consumers financial behavior (Hilgert and Hogarth, 2003). According to MacInnis et al. (1991) though familiarity aids financial numeracy but it is depend upon the processing effort of consumer during exposure and without exposure to financial concept limits the processing ones ability to obtain, use retain into personal-finance-material. Consumer retains and process only portion of information actually they exposed but unfortunately most educational programs do take consideration of target audience and despite of access to financial educational programs consumer tent to rely on experience, family, peer and media (Hilgert and Hogarth, 2003). Thus, personalized financial material should assist consumer to develop to efficient use of their capacity, get familiar with concept, and consequently increase ability to encode new knowledge. Pablo and Sitkin (1992) past-experiences provide bases risk propensity and play as bacon value in investment decisions. Experienced investor has high-risk tolerance and willing to take high risky investments. Experience provide knowledge to future financial risks (Chou, Huang and Hsu; 2010). Personal experiences affect awareness and risk assessment, which eventually affect behavior. Atkinson et al. (2006) described that the consumers who held risky debts more than half of their monthly earnings decline with growing age. In contrast, consumers who obtained risk free debt or accumulated savings increased with age. Past investment, experience develops the frame for risk awareness,

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propensity and risk transfer that influences behavior of future decision making. High experience Investor has relatively risk tolerance, they make high-risk portfolio and is an imperative factor that influences behavior (Corter and Chen, 2006). Kathleen (2005) suggests that there is positive relationship between risks and past investment experience and successful investment, experiences enhance investor tolerance towards risk. Financial educational programs are regarded as the major sources of externally obtains knowledge and suitable to answer the many question of financial-products. Lack of educational literacy often results in negative outcomes (Brown and Taylor, 2008). In additional, educational programs capable to alter the risk- attitude of investor. Consumers with poor financial numeracy are unable to interpret information. Financial education programs improve capacity (Alba and Hutchinson, 2000). Consumer only seeks and process information when they have capable to process it (Huhmann and McQuitty, 2009). Lusardi and Mitchell (2007) described exposure to these programs will eventually improve consumers financial behavior and consumer are more risk tolerant. Thus, personalized financial material should assist consumer to develop to efficient use of their capacity, get familiar with concept, and consequently increase ability to encode new knowledge. Educational programs develop the framework for risk awareness, propensity that influences behavior of future decision-making. Familiarity with financial concept Investor has relatively risk tolerance, they make high-risk portfolio and is an imperative factor that influences behavior (Huhmann and McQuitty, 2009). Therefore, suggests that there is positive relationship between risk and familiarity with financial concept increase enhance investor tolerance towards risk.

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Consumer with low risk behavior is less eager to participate in risky investment and have low risk tolerance. Expected returns affect the investor perception towards risk. Investor with higher expected returns will perceive to take higher risk and have high level of risk perception. On the other hand, investor with high-risk perception is willing to participate in high-risk investment (Sitkin and Weingarts, 1995). Consequently, perception of risk in these investors is relatively low. Thus risk and return positive in relation (Chou, Huang and Hsu; 2010). Prospect theory suggests that different stimulations affect investor risk perception (Tverversky and Kahnemen, 1972). Information stimulation (such as media new or analysts report), insist individual to make his own interpretation. Investors respond to information in according with situation, on receiving negative report, the investor respond negatively vis--vis. In addition to unique characteristics of each investor in terms of risk tendencies, level, awareness and style helps to make investment decision and construction portfolio (Tverversky and Kahnemen, 1972). Keeping in view CAPM, risk increase with increase higher compensation premium. On the other hand, low expected return with low risk. Therefore, there is positive relationship between risk and expected returns. Additional significant factor are personalized financial material, past performance and information stimulation of investor provide bases for future expected returns is focus the study. Moreover, familiarity with financial concept, experience, over-confident, and overoptimistic investor expect high returns (Kahneman and Tversky, 1974).

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Figure-2.1 Theoretical Frame work A framework will be designed to analyze the hypotheses and answer the investigate quarries. The main objective of this study is to find the relationship between factors affecting expected returns of investor. On the bases of literature review, this study :hypnotized as

Personal Financial Material 2H + Risk Propensity 3H + Market Information 4H + 2.2 Research Hypotheses H1: Experienced investors have high propensity to risk as compared to less experienced investors. H2: Positive relationship between personal financial materials and risk propensity H3: Investor perception and propensity to risky investment is negative correlated. H4: Optimistic market reports have a lower perception of risk; pessimistic reports perceive a higher degree of risk. H5: Optimistic market reports have higher returns expectations; pessimistic market reports have lower returns expectations. 16 Risk Perception 5H + Expected Return 1H + Past Experience

CHAPTER NO 3 METHODOLOGY

3.1 Pilot Testing A pilot study will be carried out to confirmation and validity of variables and questionnaire. SPSS computer program will use to analysis of the data. The pilot data will analyze the significance of relationship among the variables of the study. Sample will test on first on financial market to deduct any inefficiency to rectify and to ensure validity of survey. The survey conducted general investor regardless of their gender. The answers of respondents analyzed to confirm inter-consistency and reliability. 3.2 Main Study Keeping information obtained from the literature review, a questionnaire with modification structure questions used to test the local Pakistani investors. Sample will test on first on financial market to deduct any inefficiency to rectify and to ensure validity of survey. The survey conducted both with public and financial institute members. Fivepoint scale questionnaire used but few questions used selection filling to build portfolio. The answers of respondents analyzed to confirm inter-consistency and reliability. Prior to finalization of the questionnaire was discussed with two professionals managers working at top level and two mid level managers for implementation to obtain their

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feedback. The questionnaire accommodated in accordance with our environment to make it more comprehensive tool to analyze the opinion.

3.2.1 Sample The number included in the sample is called as sampling size. The question remains what and how big the sample should be taken. Simply, if variability, population size and confidence level is higher according the sample size will be high but cost factor will also be kept in mind while selecting sampling size. Probability-sample ensures zero possibility of each component in the population to chance to be included in the sample to be selected. This Sampling method will negate the in the chance of biasness. Therefore, purposive technique will be used in the selection of sample. The research will identify and compare the group of respondents. All educated as well as uneducated investors will be considered for the research regardless of their gender. The sample will survey with the Investment risk assessment in Financial Products Questionnaire. Questionnaires are divided into two parts. In first part Five-point scale questionnaire used but few questions use selection filling to build portfolio. Chou, Huang and Hsu, (2010) three hundred responded were taken as sample to test data of Taiwanese investors in similar study. Therefore, General investor firms will be selected as target respondents keeping in view the size of their investment from Rawalpindi and Lahore randomly as target sample. Out of 300 questionnaires, 100 questionnaires will be distributed to investor from Rawalpindi and 200 from Lahore randomly to measure their responses for reliability of study. The personnel record of

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investor is notified against their profile for cross reference. The questionnaires will be personality distribution by visiting each individual. 3.2.2 Research Tools/Instrument Weber, Blais and Betz (2002) scale of risk-attitude adapted scale ranges from strongly agree to strongly disagree will be used to test the local investors of Rawalpindi/Islamabad and Lahore. Five-point scale questionnaire will use to obtain the responses of sample. The survey conducted both with public and financial institute members. Three variables will be use achieve objective of study (Past-experience, Personalized-financial-material market information, risk propensity, risk perception and expected return. The sample will survey with the Investment risk assessment in Financial Products Questionnaire. The answers of respondents analyzed to confirm inter-consistency and reliability. SPSS will be used for descriptive, statistics, validity, reliability, confirmatory factor analysis and regression to measure the comparison between investor has sufficient academic financial background then who has no academic financial management concept. Risk propensity and risk perception used as mediator variables. Every Investor has unique experience, guided by personal financial material frame various scenarios to risk awareness and risk propensity to vary financial decisions. Resultantly, this behavior reflected in product accumulation, expected returns, and portfolio configuration. 3.2.3 Research Procedures Investor past experience used to describe the anchor effect and personal-financial material along with information sources for framing the framework. As discussed, situational factor play vital role on decision-making process. The questionnaire spotlights on response of investors under good and bad economic information. In this study, 19

probability-sampling technique will be used for data collection. A questionnaire comprising nine questions will be personally handed over to the selected samples. Situational factor and personalize financial material provides framework to measure the effect on variables. Data will be collected from survey questionnaire to measure variables (personalized financial material, information influences, pas-experiences, risk propensity, risk perception and expected return). Cronbachs alpha and Reliability will provide reliability and validity of the instrument. Descriptive analysis will describe to check and identify the level of application of study. Regression analysis will explain to indicate the relationship among the variables Independent sample t-test will measure significance of variables as well as qualification for dependent and independent variables. SPSS will be used for descriptive, statistics, validity, reliability, confirmatory factor analysis and regression to measure the comparison between investor has sufficient academic financial background then who has no academic financial management concept.

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References Alba, J.W. and Hutchinson, J.W., (2000). Knowledge calibration: what consumers know and what they think they know. Journal of Consumer Research, 27(2) : 123-56. Atkinson, A., McKay, S., Kempson, E. and Collard, S. (2006). Levels of Financial Capability in the UK: Results of a Baseline Survey, Financial Services Authority, London. Behavior. Academy of Management Review 17(1): 939. Brown, S. and Taylor, K., (2008). Household debt and financial assets: evidence from Germany, Great Britain and the USA. Journal of the Royal Statistical Society, 171(3):615-43. Byrne, Kathleen,(2005). How do consumers evaluate risk in financial products? Journal of Financial Services Marketing 10(1):21-36. Chou Shyan-Rong, Huang Gow-Liang and Hsu Hui-Lin, (2010) Investor Attitudes and Behavior towards Inherent Risk and Potential Returns in Financial Products. International Research Journal of Finance and Economics Issue 44:1450-2887

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Corter,James and Chen Yuh-Jia, (2006). Do Investment Risk Tolerance Attitudes Predict Portfolio Risk? Journal of Business & Psychology 20(3) (Spring 2006): 369-381. Elliehausen, G., Lundquist, E.C. and Staten, M.E.,(2007). The impact of credit counseling on subsequent borrower behavior, Journal of Consumer Affairs, 41(2): 1-28. Fama, E. F. (1970) Efficient capital markets: a review of theory and empirical work Journal of Finance, 25:383-417. Hilgert, M.A. and Hogarth, J.M.,(2003). Household financial management: the connection between knowledge and behaviour. Federal Reserve Bulletin, 89(7): 309-22. Hu, J., Huhmann, B.A. and Hyman, M.R.,(2007). The relationship between task complexity and information search: the role of self-efficacy. Psychology & Marketing, 24(3):253-70. Huhmann B. A. and McQuitty Shaun, (2009). A model of consumer financial numeracy. International Journal of Bank Marketing 27(4):270-293 Hutchinson, J.W.,(1987). Dimensions of consumer expertise. Journal of Consumer Research, 13(4):411-54. Kahneman, D.,(2003) Maps of Bounded Rationality: Psychology for Behavioral Economics. American Economic Review, 93(5):1449-1475. Kahneman, D. and Riepe M. W. Aspects of investor psychology Journal of Portfolio Management, : 52-65.

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Kahneman, D. and Tversky, A.,(1973) On the psychology of prediction Psychology Review 80 :237-251. Kahneman, D. and Tversky, A.,(1979) Prospect theory: An analysis of decision under risk. Econometrica, 47(2) 263-91. Kahneman, D. and Tversky,(1972) A. Subjective probability: A judgment of representativeness Cognitive Psychology 3:430-454. Lusardi, A. and Mitchell, O.S.,(2007) Financial literacy and retirement preparedness: evidence and implications for financial education programs. Business Economics, Vol. 42 No. 1 (2007), pp. 35-44. MacInnis, D.J., Moorman, C. and Jaworski, B.J.,(1991), Enhancing and measuring consumers motivation, opportunity, and ability to process brand information from ads. Journal of Marketing, 55(4):32-53. Malmendier Ulrike and Nagel Stefan, (2011), Depression Babies: Do Macroeconomic Experiences Affect Risk Taking? The Quarterly Journal of Economics, 126:373416. March, J.G., (1978), Bounded rationality, ambiguity, and the engineering of choice, Bell Journal of Economics, 9:587-608. Pablo, A.L., Sitkin, S.B. and Jemison, D.B.,(1996) Acquisition decision-making processes: the central role of risk, Journal of Management, 22 :723-47. Ronay, Richard and Kim, Do-Yeong, (2006) Gender differences in explicit and implicit risk attitudes: A socially facilitated phenomenon. British Journal of Social Psychology 45(2): 397-419.

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Sitkin, S. B. and Weingart, L. R.(1995), Determinants of risky decision-making behavior: A test of the mediating role of risk perceptions and propensity. Academy of Management Journal 38(6):1573-1582. Thomas Dohmen, Armin Falk, David Huffman, Uwe Sunde,(2011) Individual Risk Attitudes: Measurement, Determinants and Behavioral Consequences. Journal of the European Economic Association, 9(3),:522550 Tversky, A. and Kahneman, D.(1974) Judgment under uncertainty: Heuristics and biases. Science 185:1124-1131. Weber, Elke U., Blais, Ann-Renee and Betz, Nancy E.(2002) A domain-specific riskattitude scale: Measuring risk perceptions and risk behaviors. Journal of Behavioral Decision Making, 15(4):263-290. Williams Steve, Zainuba Mohamed and Jackson Robert, (2003) Affective influences on risk perceptions and risk intention, Journal of Managerial Psychology, 18 (2), : 126-137 Willis, L.E.,(2008), Against financial-literacy education. Iowa Law Review, 94(1): 197285. Philip A. Wickham, (2008), What do strategists mean when they talk about risk? Business Strategy Series, 9:201-210, Haimes, Y. (2006). Talk given at Risk Analysis for Homeland Security and Defense: Theory and Application. Risk Symposium. Sante Fe, NM, 211-216.

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Appendix Weber, Blais and Betz (2002) scale of risk-attitude scale Selected questionnaire of risk assessment of investment in financial products: Q 1: How well do you consider yourself capable of managing your personal finances? Question I have sufficient financial management knowledge My fixed deposit investments have been successes My investments in mutual funds have been successful. My investments in structured notes have been successful. My investments in investment insurance policies have been successful. My investments in futures and options have been successful. Strongly Agree Agree Neutral Not Agree Strongly Agree

Q 2: How well do you consider educational programs help yourself capable of managing your personal finances? Question I have sufficient financial management knowledge My fixed deposit investments have been successes My investments in mutual funds have been successful. My investments in structured notes have been successful. My investments in investment insurance policies have been successful. My investments in futures and options have been successful. 25 Strongly Agree Agree Neutral Not Agree Strongly Agree

Q 3: In your own subjective opinion, indicate the degree of riskiness you associate with each of the activities described below: Question Using a days pay to purchase lottery tickets or place sporting bets. To lend a months pay to friend. Use 5% of a months pay to buy a very speculative stock. Use 10% of a years pay to buy a risky mutual fund. Start a new job without a fixed salary. Q 4: Indicate your attitude on the statements about investment in financial products: I have to be prepared to lose some of my investment. Question I must bear the risk for any failure to meet the forecast interest. If the information provided for this investment type is insufficient, I would feel the investment were unsafe. The returns from time deposits have changed considerably in recent times. If I were to invest in time deposits, I would feel concerned about risk. I do not think the regulatory system for time deposits is sufficiently strict. Strongly Agree Agree Neutral Not Agree Strongly Agree Strongly Agree Agree Neutral Not Agree Strongly Agree

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Q 5: Please read the message below and then answer the following questions: If you will invest three million dollars in the following products, what asset value would you anticipate after three years? 1. Fixed deposits: 2. Insurance policies: 3. Stocks: 4. Mutual funds: 5. Structured notes: a. less than 0.5 million a. less than 0.5 million a. less than 0.5 million a. less than 0.5 million a. less than 0.5 million b.05~ 1 million b.05~ 1 million b.05~ 1 million b.05~ 1 million b.05~ 1 million c.1~1.5 million c.1~1.5 million c.1~1.5 million c.1~1.5 million c.1~1.5 million d. more than 2 million d. more than 2 million d. more than 2 million d. more than 2 million d. more than 2 million

Q 6: If you had 5 million to invest, please indicate how (according to your risk perception and expected returns) you would distribute these funds across the different financial products. Strongly Agree Agree Neutral Not Agree Strongly Agree

Q8: Please indicate which of the following conditions apply for you: Your Gender Your marital status: Your age Your highest level of formal education: Your occupation type: Personal average monthly income:

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