Abstrak
Rational decision making model has faced more challenge under uncertainty condition with respect to higher bounded rationality. Decision makers tend to judge heuristically as a short cut to overcome the incomplete information (Kreitner & Kinicki, 2008), based on their cognitive, psychology, and perception about specific situations. Cognitive dissonance (Festinger, 1957), Escalation of Commitment (Bowen, 1987, Staw & Ross, 1987), Prospect Theory (Kahneman & Tversky, 1979), and Image Theory (Beach & Mitchell, 1987) are some approaches that attempt to explain those decision makers’ predicting behavior beyond rational approaches, so-called non-rational model.
In the investment field, decision makers are associated with investors, where risk-return optimization, fundamental analysis, and other valuation methods, which relate to rational model, often fail to explain the asset value in the market that are more inefficient in the recent years. Hirshleifer (2001) concluded that asset value is influenced by risk-return and misvaluation, where the later is caused by investor psychology. This factor might lead to skyrocket asset value that create great gap to their intrinsic value (Shiller, 2002), and in the long-run will produce asset bubbles. Rational approcahes fail to explain this phenomenon.
Since the end of 1980s, researchers started to shift their investigation to behavioral finance, which relate to non-rational model, e.g. Overconfidence & Biased self-attribution (Daniel et.al., 1988), Investor Psychology (Hirshleifer, 2001), Feedback Theory (Shiller, 2002). In essence, they attempted to explain what the investor reaction in specific situation, and why it happen. By answering that two questions, researchers can expect to explain the asset bubles phenomenon.
The question “how” the process of investment decision made should be investigated in the decision-making field. Observations in this empirical study are built within Image Theory framework, thus it concern to process of alignment or unalignment of the investors’ perception about the three image with respect to perception of specific condition. The output of this perception process is image compatibility, which is the important determinant to predict investment decision. Otherwise, this paper also utilizes the real situation, i.e. real momentum of recent bearish condition, and real decision makers (investors) to test Image Theory implication, where Dunegan (1995) deployed manipulated situation.
This paper has been presented in the 4th Indonesian Doctoral Journey in Management (DJM) on August 5, 2009 and will be presented in The 4th Internastional Conference on Business and Management Research (ICBMR) on November 22-24, 2009.
