Risk Tolerance as the Invisible Hand: Rethinking the Causal Architecture of Behavioral Biases in Individual Investment Decision-Making
DOI:
https://doi.org/10.47747/fmiic.v1i3.3572Abstract
This study challenges the prevailing causal architecture of behavioral finance, in which loss aversion, overconfidence, and FOMO are treated as independent determinants of risk tolerance as a situational outcome. Drawing on Big Five Trait Theory, Prospect Theory, and Mischel and Shoda's (1995) person–situation interactionist framework, it advances an alternative model in which financial risk tolerance functions as a stable dispositional antecedent through which situational biases operate as transmission mechanisms. Primary data were collected from 140 active retail investors in Indonesia via snowball sampling from digital investor communities, with PLS-SEM employed for hypothesis testing. Results support three of four hypotheses: risk tolerance exerts a significant positive direct effect on investment decisions, and overconfidence and FOMO each function as significant mediating channels. The loss aversion pathway is not supported — interpreted in light of the sample's digitally-engaged, high-tolerance profile, wherein social and momentum forces appear to override loss aversion's constraining effect when stronger mediators are simultaneously active. These findings contribute a dispositional reframing of the investor behavioral model with direct implications for risk profiling instruments, financial advisor calibration, and the design of targeted behavioral interventions.
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