Psychological factors effects on Propensity towards Indebtedness by applying the Behavioural Economic Theory: Evidence in Malaysia

Abstract

This study objectifies to construct a model of propensity towards indebtedness through the application of psychological factors from 172 respondents in Malaysia. A questionnaire which consist of 57 questions was administered. The questionnaire addressed four psychological factors (emotion, risk perception, myopia and overconfidence). The finding indicated negative emotion, high risk perception, myopic, and overconfidence consumers results to high propensity to indebtedness. By using the Structural Equation Modelling (SEM), all two hypotheses are confirmed with two new ones inserted. Thus, since propensity to indebtedness are often detrimental to consumers’ insolvency, it is appropriate for interested parties to invest time and effort to diagnose the influence psychological factors have on the propensity to indebtedness, hence, this model will prove valuable. This conceptual model provides an insightful foundation for the analysis of multidimensionality of psychological factors on the propensity to indebtedness.