The evolution in property investment decision-making: the influence of behavioural aspects
Date
2014
Authors
Lowies, G.A.
Hall, J.H.
Cloete, C.E.
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Advisors
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Journal article
Citation
Journal of Construction, 2014; 6(2):14-21
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Abstract
Purpose: Decision-making and how people perceive and act on their decisions have been extensively researched. Traditional financial aspects assume that rational people make rational financial decisions. However, this assumption is increasingly questioned, suggesting that a more descriptive, behavioural approach to financial decision-making should be followed. This study’s objective was to examine the influence of behavioural aspects, in particular heuristic-driven bias and frame dependence,to the decision-making process in a property investment context.
Methodology: A comprehensive review was undertaken of the literature on rationality in relation to investment decision-making,with specific reference to property investment decision-making.Propositions derived from the review of the relevant literature were empirically tested using a survey-based design. Qualitative and quantitative methods were used to analyse the data.
Findings: It is important to note that on the basis of this study, the subject area of behavioural finance with special reference to real estate does have a practical application. Although heuristic-driven bias as a behavioural approach does not seem to influence the investment decisions made by listed property fund managers in South Africa, frame dependence is prominent in their investment decision-making.
Value of the research: Through the findings of this study it is recommended that fund managers be made aware of the presence of frame dependence as a behavioural aspect in the investment decisions they make, as incorporating this information into their normative investment strategies may lead to increased returns. It is further recommended that the findings of this study be used to assist management in appointing key decision-makers. This study enhances the understanding of the role that behavioural aspects play in the South African property industry and, more importantly,it goes some way towards enhancing understanding of heuristics and frame dependence and their influence on property investment decision-making in this country.