The Construction of Investment Rationality Index

Abstract

The paper mainly discusses the operational definition of investment rationality and proposes the measuring criterion through the analysis of individual’s sensitivity to noise information and material information from the view of signal detection theory. According to the measuring criterion, the authors design an experiment, which contains risk level and risk presentation, standing for material information and noise information respectively, as independent variable and financial product acceptance as dependent variable. Through variance decomposition, the effects of material information and noise information on financial product acceptance can be calculated, on the basis of which investment rationality can be measured. The investment rationality index will be helpful for the further study of investment rationality.