Culture,Thinking Styles and Investment Decision

Abstract

Past research suggests that people with different thinking styles show different cognitive processes. Accordingly, we test how thinking style and advice jointly affect investment decision. We conduct three experiments with 530 participants. In Study 1, coin, card and stamp investors who had high levels of holistic thinking and made decisions on their own obtained the lowest returns. In Study 2, participants who used analytic thinking to make decisions on their own in the Balloon Analog Risk Task (BART) earned the most. In Study 3, Westerners who made decisions on their own using analytic thinking had the highest incomes, while Easterners using holistic thinking and listening to others also had positive returns. The results support the framing effect in investment decisions, and the two simulation paradigms are presented for future studies and to confirm the impacts of thinking styles.

Keywords

Holistic thinking analytic thinking decision-making framing effect

Introduction

With the globalization of the market and the continuous improvement of people’s incomes, their awareness of investment and financial management has been comprehensively strengthened. However, it is undeniable that for a normal person, investing in venture capital, as with the stock market (both high risk and high reward), often has great uncertainty. Although the complexity of the market itself affects the return on investment, individuals’ decision-making attitudes have the greatest influence on investment revenue (Aruna & Rajashekar, 2016; Chen et al., 2007). The media have alleged that only approximately 5% of retail investors can make money in China’s stock markets, but investors’ enthusiasm for stock markets has never subsided. Western investors are also irrational in that they rush to buy or sell while exposed to all kinds of positive and negative market news, which presents a challenge to the traditional model of the “economic man”. Their decision-making in economic activities is always subject to interference from a variety of factors (Quinn, 2016). Studies of culture and decision-making address variations in how and why people from different cultures sometimes decide differently (Yates & De Oliveira, 2016). We have to ask whether the decisions of individuals in East and West bring different consequences from uncertain investments?

Numerous studies have indicated that investors must consider many factors in their investment decision-making, including internal factors such as their level of education, knowledge, and willingness and external factors such as economics, politics and the financial statements of companies or industries (Abdeldayem, 2016; Bashir et al., 2013; Jahanshahi et al., 2017; Pak & Mahmood, 2015). However, when discussing the decisions between Easterners and Westerners, it should be highlighted that culture matters, as thinking style affects almost the whole process of risk decision-making (Ackert et al., 2003; Baker & Nofsinger, 2002; Fogel & Berry, 2006). Meanwhile, the influence of thinking style on personal attitudes and related concepts and orientations has gradually become a central feature in economics and behavioral finance (Groves et al., 2008; Henderson & Nutt, 1980; Hough & Ogilvie, 2005; Jahanshahi et al., 2017). In fact, exploring the differences in decision-making in the East and West from the perspective of thinking styles is very important.

Furthermore, most normal investors do not systematically learn the relevant investment knowledge, nor do they collect stock information that is extensive (market quotations) and deep (quarterly reports). Instead, they listen to some experts (such as accountants and investment banks) or friends’ recommendations. Studies have reported that although experts have better information processing skills, they infrequently outperform laymen’s investment decisions (Camerer & Johnson, 1991), let alone so-called friends’ advice. The well-known investor Buffett once said, “Even if the Fed chairman secretly told me the monetary policy for the next two years, I would not change any of my investments” (Lowe, 2007). Therefore, whether we should make decisions on our own when investing in venture capital becomes the second question in this study. The main purpose of our study is to explore whether thinking style and making decisions on one’s own interact to affect individual income.

Does thinking style affect investment income?

Generally, thinking style refers to a tendency to use one’s thinking ability to carry out daily activities, such as solving problems and overcoming challenges (Raffaldi et al., 2012). A growing body of literature shows well-documented differences between thinking styles between Western and East Asian cultures; that is, analytic thinking is more prevalent in Western cultures, whereas holistic thinking is more common in East Asian cultures (e.g., China) (Spencer-Rodgers & Peng, 2017; Wyer et al., 2009). On the basis of the Social Orientation Hypothesis, for the most part cultural differences in cognition are due to the social orientation differences (Varnum et al., 2010). Classic individualists who value autonomy, tend to emphasize self-expression and view the self as bounded and separate from social others are independently oriented and more analytic whereas collectivists who respect for social responsibility, emphasize a group’s harmony and view the self as interconnected with significant others are interdependent social orientation and more holistic ((Markus & Kitayama, 1991; Spencer-Rodgers & Peng, 2017;Varnum et al., 2010).

Analytic thinking is characterized by a tendency to focus primarily on objects and their attributes, i.e., analytic thinkers like to distinguish focal objects or people from their contexts, ascribe causality to objects or actors, explain objects and social events on the basis of formal logic, and predict future events in a linear manner (Frederick, 2005; Kahneman & Frederick, 2002; Stanovich, 2009). In contrast, holistic thinking is characterized as paying attention to the relations among objects and their contexts when holistic thinkers attend to a whole field, attributing causality to contexts, relying on experience-based knowledge to explain objects and events, predicting cyclic changes of events, and categorizing objects on the basis of their thematic relations (Masuda & Nisbett, 2001; Nisbett et al., 2001). Holistic thinkers, therefore, rely more on imagery‐based elaboration, which means that they are used to thinking about problems by taking into account background or contextualized information. Nisbett et al. (2001) found this when they presented realistic animated scenes of fish and other underwater objects to Japanese (those who are thought to use holistic thinking styles) and Americans (those who are thought to use analytical thinking) and asked them to report what they saw. The first sentence of American participants usually focused on the fish itself, while the first sentence of Japanese participants usually mentioned background elements, such as lakes or ponds. They further found that although Americans and Japanese were equally likely to mention details about fish, Japanese participants reported 70% more information on background elements.

Thinking styles in Western cultures tend to adopt decontextualization, while those in other cultures do not (Kalro et al., 2013). Different thinking styles determine the mode of elaboration they use in information processing, which in turn shapes their attention and attitudes (Nisbett et al., 2001; Thompson & Hamilton, 2006). Holistic thinkers tend to pay attention to the whole picture, including the objects in the background and the context, during analysis (Nisbett et al., 2001). For example, they combine the evaluations of the objective product with the nature of the background, whereas analytic thinkers separate their evaluations of the objective product from the nature of the background (Zhu & Meyers-Levy, 2009). When facing rising or falling stocks or futures, holistic thinkers pay more attention to the background trends of the curves than analytic thinkers, which in turn will further influence their decision-making and judgment, which is known as the “anchoring effect” (Tversky & Kahneman, 1974). Research also shows that holistic thinkers tend to have stronger anchoring effects (Ji et al., 2008).

Analytic thinkers tend to perceive themselves as isolated consumers independent of their social background, and their attention is focused on the core object with much elaboration of its concrete attributes, e.g., the last point in a fluctuation curve (Thompson & Hamilton, 2006). In other words, holistic thinkers tend to use anchoring effects, so they always use certain values (cost price) as the starting point to measure stock profits and losses. For example, when a stock goes up, it means that its monetary value exceeds the cost price, and the holistic thinker tends to sell it because it has already made profits; however, when a stock goes down, its monetary value is lower than the cost price, and the holistic thinker tends to keep holding it because they will lose money when it is sold. The stock market has uncertainty, and high risk does not always pay off (Marks, 2011). When a stock has been falling, the anchoring effect makes the holistic thinker reluctant to sell it, so they will always be in a state of loss; sometimes, holistic thinking also sets the highest and lowest points of the stock in recent years as the anchoring points, and the highest and lowest prices in the past are not referential. Due to the randomness of returns, the success of high-risk investment behaviors has been disproved in stock and futures markets with complete uncertainty (Bradbury et al., 2019). In addition, a certain rate of return or a certain loss rate can be guaranteed by a low-risk strategy (stop-loss and profit lines) (Bradbury et al., 2019).

Past research also proves that, compared with analytical thinkers, holistic thinkers will show a greater “gambler effect” in the stock market (Ji et al., 2008). It has been proven that most shareholders holding this psychological state are in a loss state in the stock market. Therefore, we assume that Eastern holistic thinkers face more risks in venture capital activities than Western analytic thinkers, resulting in smaller gains or larger losses for the former.

Do decisions alone result in more gains?

Many factors are considered when making decisions in real investment situations, including economic trends, the financial statements of the company or industry, investors’ own education, thinking style, willingness, etc. (Jagongo & Mutswenje, 2014). The economic man was supposed to be a rational creature; since rationality now includes assessing probabilities in a consistent way, the economic man can be expected to do that, too (Smith & Stewart, 1963). Since investors are limited by their own cognitive levels, financial knowledge and other aspects, it is often difficult to show complete rationality in dealing with financial items such as stocks or futures (Liu & Li, 2019). Kahneman (1992) pointed out that human investment decisions often have uncertainties; that is, their decisions differ from those in classical economic theories. The standard model takes the rationality of individual preferences as given, which is to say that individuals are always correct about what is best for them (that is, about how to maximize their utility) (Kahneman, 1992). Human behavior is affected by individual values, beliefs, and the environment, but humans often do not have expertise; thus, rational decision-making is far above the economic man (Madrian & Shea, 2001). Therefore, when facing complex and unpredictable stock and future markets, individual investors’ irrational investment behaviors are sometimes more similar to gambling.

Investors with low financial knowledge mostly choose to participate in safe and traditional forms of finance (Sharma et al., 2017). Many facets of overconfidence have been examined using the tendency to overestimate one’s own knowledge and participate more in difficult forms of finance that are relatively risky and could give a high rate of return (Johnson & Fowler, 2011; Lambert et al., 2012). Assuming that the returns and risks of risky investments are random, objectively speaking, listening to others’ investment strategies or decisions alone will not influence results. Therefore, in addition to thinking style, making decisions on one’s own may also be an important factor affecting individual income.

Specifically, based on the view that different thinking styles create differentiation, since holistic thinkers are more likely to perceive the interrelations among different aspects of an object or an event than analytic thinkers (Choi et al., 2003), holistic thinkers tend to have stronger anchoring effects (Ji et al., 2008), which also cause them to consider a broader set of factors, such as the advice of others. Specifically, they are more concerned about friends and the people around them (Pangeran, 2015), and they hope to obtain more background information for their decision-making. Without advice from friends or more background information, holistic thinkers do not know what to do. The only information they have is what they currently see and possess; therefore, the anchoring effect (the only thing they can rely on) is stronger, and ultimately, they become much riskier in their venture capital investments. Therefore, holistic thinkers’ anchoring effect is compensated by them referring to others’ decisions. Under the same conditions, analytic thinkers evaluate information on an attribute-by‐attribute basis and combine the attribute values to assess the overall value of the investment decision, although they exhibit an anchoring effect that is far smaller than that of holistic thinkers (Ji et al., 2008). They tend to predict a continuation of the immediate trends, are pessimistic when prices have fallen and tend to sell their shares as quickly as possible, which generally represents a more stable investment strategy with lower gains or losses. However, when holistic thinkers adopt wider viewpoints and consider useless background information, it reduces their anchoring effects, making investments less risky, whereas analytic thinkers will face higher relative risks as their more rational behaviors are restricted (by such mechanisms as stop profits and stop losses).

The current study

As mentioned above, we conducted three studies using varied paradigms among different people to test the hypotheses that the joint effect of thinking style and making decisions on one’s own will affect individual investors’ venture capital incomes. That is, there will be a smaller anchoring effect from stock trends when analytic thinkers listen to themselves and holistic thinkers listen to others, leading to lower losses or even gains. In Studies 1, we measured thinking style and making decisions on one’s own in actual coin, card and stamp investors and demonstrated that low holistic thinking was the end result of coin, card and stamp investors’ making decisions on their own, positively predicting investment income. In Study 2, we manipulated thinking styles and measured making decisions by investment simulation task. We replicated the findings and indicated that individuals using analytical thinking gained more investment income when making decisions on their own and individuals with holistic thinking gained more investment income when not making decisions on their own in lab experiment. In Study 3, we further manipulated decisions with advices and checked thinking styles and replicated the findings. We reported all the studies, all the measures and conditions in each study.

Study 1

Study 1 was conducted with Beijing coin, card and stamp investors to test our hypothesis that the greater the degree of holistic thinking, the lower the income from decisions on one’s own is. Coins, cards and stamps refer to stamps, coins, telephone cards and other postal supplies, including revenue stamps, currency (paper money and coins), precious metal coins (gold and silver coins) and so on. Since the business is both highly risky and highly profitable, we consider it a high-risk investment behavior.

At the beginning of the study sessions, participants completed a screening questionnaire to exclude individuals who were currently in pain, who had recently ingested analgesic medication, or who had recently consumed alcohol.

Method and materials

To estimate the required sample size, we used a medium effect size (f = 0.40) to balance the overall investments in offense versus defense. We recruited 205 participants (all males, M_age=41.27) who were coin, card and stamp investors in Beijing to achieve a power of 1-ß = 0.80 (with α= .05). The study was fully incentivized, did not involve deception, and was approved by the Psychology Ethics Board of Peking University. The participants gave their written informed consent and were debriefed.

The participants were seated in individual cubicles and answered an online version of the Chinese Holistic Thinking Style Scale (CHTSS; Hou, & Zhu, 2002).¹ It consisted of 13 items that are rated on 7-point scales ranging from 1 (this statement does not apply to me at all) to 7 (this statement always applies to me) and included three theoretical factors: belief in connection, acceptance of contradiction and contradiction. Some examples, as used here, were (1) many things that seem isolated are actually related, (2) there is a connection between those things that seem isolated, and (3) I often find that things will contradict each other. The interitem reliability was acceptable (Cronbach’s alpha= .884). Following this assessment, participants read the instructions for an investment behavior decision questionnaire (5-point scales; responses of eight items were averaged in one single index describing whether they make decisions on their own) and answered a short comprehension test. Specifically, participants read that they would make decisions involving themselves (e.g., “The information from my family and friends has an impact on my investment decisions”, “The information from exchange has an impact on my investment decisions”, “The information from agency and elsewhere has an impact on my investment decisions”, and “I believe in stock reviews on the Internet”). Interitem reliability was acceptable (Cronbach’s alpha= .847). After that, the participants reported their investment income (losses or gains in percentages) and other demographic variables.

Results

To examine the correlation between thinking style and making decisions on one’s own, we computed the correlations between the weights that participants attach to others’ outcomes (other concern) and investments. As shown in Table 1, the Chinese holistic thinking style was negatively correlated with making decisions on one’s own (r = −0.21, p = 0.003) and investment income (r = −0.16, p = 0.025). Making decisions on one’s own was also positively correlated with investment income (r = 0.14, p = 0.041). The results showed that the greater degree of the holistic thinking style one used, the less likely they were to make decisions on their own and the lower their investment returns. In addition, the more likely that they were to make decisions on their own, the higher their investment returns were.

Table 1.

Descriptive statistics, reliabilities, and intercorrelations in study 1 (N = 205).

	Mean	SD	1	2	3	4	5	6	7
1. gender	–	–
2. age	40.11	8.54	−0.04
3. education	4.34	1.10	−0.01	−0.06
4. annual income	20.92	39.31	−0.12	0.03	0.06
5. holistic thinking	4.13	0.47	0.14^*	−0.10	0.03	−0.02
6. decision on their own	3.02	0.69	−0.22^**	0.16^*	−0.13	0.11	−0.21^**
7. investment returns	16.50%	1.44	−0.16^*	0.08	0.08	0.12	−0.16^*	0.14^*	1

Note: For the gender variable, men were coded as 1, and women were coded as 0.

* p<.05. ** p<.01. Two-tailed.

Table 2.

Multiple regression analyses in study 1 (N = 205).

	Investment income
	B	SE	t	p	LLCI	ULCI
Control variable
Gender^a	−0.22	0.15	−1.53	0.128	−0.51	0.06
Age	0.01	0.01	1.14	0.257	−0.01	0.03
Education	0.10	0.06	1.49	0.137	−0.03	0.22
Annual income	−0.03	0.08	−0.39	0.696	−0.01	0.01
Independent variable
Decisions on their own	0.03	0.07	0.45	0.651	−0.11	0.18
Moderating variable
Holistic thinking	−0.07	0.07	−1.04	0.301	−0.21	0.07
Interaction
Decision x holistic thinking	−0.18	0.08	−2.27	0.024	−0.33	−0.02
Conditional effects of the focal predictor at values of the moderator(s)
Holistic thinking	Effect	SE	t	p	LLCI	ULCI
−1 SD (−0.92 )	0.20	0.10	2.08	0.039	0.01	0.39
M (−0.10 )	0.05	0.07	0.71	0.478	−0.09	0.20
+1 SD (1.04 )	−0.15	0.12	−1.27	0.204	−0.39	0.08

Note: The 95% confidence intervals are provided and the number of bootstrap samples = 5000.

^a1 = male, and 2 = female.

In a second set of analyses, we used the moderating effect (model 1) from PROCESS (SPSS; Hayer,2013) to unravel the influence of the interaction between decision-making style and Chinese thinking style on income from investment. After controlling for age, education and annual income (Table 2) (), and income from investment decision x thinking style was significant (F (7,188) =2.85, R = 0.31, R²=0.10, p = 0.01). In addition, the interaction between holistic thinking and investment decision-making had a significant effect on investment returns (F(1,188)=5.16, R²=0.03, p = 0.024, β = −0.18, SE = 0.08, t = −2.27, p = 0.024). To clarify these interactions, we conducted simple slope tests using the procedure recommended by Aiken and West (1991), with comparisons of the thinking styles taken at +/−1 SD from the mean. Figure 1 presents the regression lines for data collected under the four experimental cases at high (+1 SD) and low (−1 SD) levels of thinking styles. The moderating effect found by this comparison was significant (effect = 0.20, SE = 0.10, t = 2.08, p = 0.039, 95% CI [0.01, 0.39]) and indicated that individuals with low holistic thinking experienced higher investment incomes when they made decisions on their own than when they listened to others’ advice. The high-holistic-effect in the second test was not significant (effect = −0.15, SE = 0.12, t = −1.27, p = 0.20, 95% CI [−0.39, 0.08]) when individual investors with high holistic thinking had more income. These results provide initial evidence that low holistic thinking was the end result of coin, card and stamp investors’ making decisions on their own, positively predicting investment income.

Figure 1.

Moderating effect of holistic thinking on the relationship between making decisions on one’s own and investment income (Study 1). Higher numbers indicate greater income from investment (%) reported by the participants since they became coin, card and stamp investors.

Discussion

The results of Study 1 provide initial support for the hypothesis that the lower the holistic thinking score is, the higher the income from decisions made on one’s own. For individuals with higher holistic thinking, their field dependency and the connections made in their thinking style play key roles in the framing effect in their decision-making (Cassotti et al., 2012). For example, it is easier to believe the comments of others, the predictions of some institutions, and even information from friends regarding the current investment. The framework effect enables investors to focus on the information of the scene that they can easily see is considered very important, thus influencing their investment decisions. In fact, a rational investment decision is the result of objective information and rational analysis. The supporting evidence from rational analysis is not based on available evidence or dominant viewpoints majority evidence, but rather it integrates all kinds of evidence with reasonable logic to make corresponding predictions. Compared to Chinese investors (holistic thinking), Canadian investors (analytic thinking) were strongly influenced by the most recent price trends and tended to predict that recent trends would continue and make selling decisions without considering the rest of the trend pattern (Ji et al., 2008). Our results are consistent with prior work suggesting that for individuals with low holistic thinking, making decisions on their own would greatly influence investment income.

Study 2

The results of Study 1 support the influence of thinking style on making decisions on one’s own and investment income. In Study 2, we sought to conceptually replicate the results from Study 1 with a different measurement of thinking styles to test our hypothesis.

Method

Participants and design

Regarding the sample size, we reference Ji et al.’s (2008) research. The sample consisted of 125 adults (M_age = 35.41, SD_age = 8.91, 63 females and 62 males) from Beijing. The participants were randomly assigned in a 2 (thinking style)×2 (decision) between-subjects factorial design. Individual differences in the desire for control again served as an additional continuous predictor variable.

Procedures and measures

Priming task for thinking styles

To assess individual differences, we had participants complete a priming task by asking them to look at a black and white line drawing of a scene (Monga & John, 2008), which had line drawings of 11 small objects (ski cap, bird, and key) embedded in the scene (see Appendix A). They were told to find as many of the objects as possible in the scene. Finding embedded figures encourages field independence, which is a major characteristic of analytic thinking (Nisbett et al., 2001). Holistic thinking was promoted by asking them to view the same scene and write down what they observed in the scene. Focusing on the background encourages field dependence, which is a major characteristic of holistic thinking (Nisbett et al., 2001). Participants performing under this condition were not told about the 11 small objects that were embedded in the scene. Note that the drawings were well embedded (Masuda & Nisbett, 2001) such that participants in the holistic condition would not spontaneously see those objects.

Thinking style check

A memory task was modified from that of (Kühnen & Oyserman, 2002). It included a 20 × 12 cm picture made up of 22 simple items (e.g., shoes, umbrella, and glasses) without any systematic spatial order that was presented for 90 seconds and an empty grid on which the participant subsequently wrote down what he or she remembered. They were asked to view a picture for 90 seconds and document what they had just seen on the grid. As expected, holistically primed participants outperformed analytically primed participants since this is a task in which the context-dependent approach of holistic thinking is beneficial (Nisbett et al., 2001) (see Appendix A).

Investment simulation task

We utilize an adapted version of the Balloon Analog Risk Task (BART; Lejuez et al., 2003). This task has been used to assess risk taking in a more naturalistic setting than the usual assessment using monetary gambling (Braga & Fávero, 2017).

In the BART, participants were told to decide whether to keep pumping air into a balloon to increase its monetary value and its probability of bursting and losing all of the money. It consisted of 20 trials (balloons) with participants hitting the “F” key to pump air into it. For every pump, the balloon increased in size and 0.1 RMB (the maximum of each balloon was 6.4 RMB) was added to the current balloon’s monetary value. Each balloon had a maximum number of possible pumps, but they differed (ranging from 1 to 64, M = 32), and the participants could avoid the balloon bursting by pressing the “J” key to save a balloon’s monetary value before the end. The balloon’s current value and the balance were shown throughout every trial on the screen, with the pumping and popping accompanied by sound effects. Participants were instructed that the total monetary value they gained was the rate of return on the investment that we recorded. After the BART was performed, each participant acquired an average of 12 RMB, with the maximum amount being 128 RMB.

Manipulating decision making

When in the BART, participants who decided with advice were accompanied by two other participants who were actors and allowed to talk about their “experiences” with former participants, saying phrases such as “My experience is that it should be continued at this time” or “My experience is that it should be stopped at this time”. Since the bursts are totally random in the BART, their “experience” was actually useless. Participants who had to decide without advice had no such input or other interference. To verify whether the participants who received advice truly referred to and used information based on the others’ experiences in their decision, participants were asked “Has the information been helpful or useful to you?”. Those who answered yes were kept in the study (Excluding cases were a total of 6 in the decision-with-advice group those who answered “NO” ) .

Results

Thinking style manipulation check

We predicted that the holistically primed participants would perform better at the recall task than the analytically primed individuals. As expected, the holistically primed participants (N = 63) were better able to remember what they had seen in the scene (mean = 7.06, SD = 1.75), t (123) = −4.67) than the analytically primed participants (N = 62, mean = 5.58, SD = 1.80). Note that when we ignored the location and simply counted the number of remembered items, both groups did quite well (holistically primed, mean = 11.43, SD = 3.01; analytically primed, mean = 12.16, SD = 3.18), and the t test indicated no significance (t(135) = −1.32, p = 0.100), which further confirmed that our priming did succeed. Holistically primed participants spontaneously encoded the items with their context and produced field-dependent advantage (spontaneous binding of object to a place or context) (Masuda & Nisbett, 2001). However, since the participants were all Chinese using holistic thinking, we believe that it was actually the successful priming with analytic thinking in other participants that led to this expected result.

As a test of our hypotheses, these data were submitted to a 2 (decision on their own) x 2 (thinking style) between-subject analysis of variance test (ANOVA, Figure 2). The means and standard deviations across experimental conditions are displayed in Appendix B. This test yielded a significant effect for only the decision x thinking two-way interaction (F(1, 124)=16.78, p < 0.001, η_p²=0.12). The simple effect test further revealed that when making decision with advice, analytical thinking gained significantly less investment income than holistic thinkers (p = 0.001). However, when making decision on their own, analytical thinkers gained significantly more investment income than holistic thinkers (p = 0.005). In addition, when primed with analytical thinking, participants who made decision on their own gained significantly more investment incomes than those who made decision on advice (p = 0.001). In contrast, when primed with holistic thinking, participants who made decision with advice gained significantly more investment incomes than those who made decision on their own (p = 0.005). These results indicated that individuals using analytical thinking gained more investment income when making decisions on their own and individuals with holistic thinking gained more investment income when not making decisions on their own.

Figure 2.

Total earned from the BART in two conditions.

Discussion

The results of Study 2 support and extend the first study’s findings by indicating that the thinking style and making decisions without advice jointly affect investment income. This outcome occurs because stocks and other venture capital are unpredictable (Suyanto & Sibarani, 2018) and chaotic (Braga & Fávero, 2017). The BART is quite naturalistic since it resembles cumulative everyday life risks, and the results support this conceptual similarity (Lejuez et al., 2003). The BART used in Experiment 2 is an incentivized behavioral measure that has an optimal, reward-maximizing strategy, and when participants exerted a more risk-taking behavior (pumping more to gain more income), they faced a higher probability of loss as they pumped more. In fact, there are ways to reduce the risk of loss and mimic better long-term decision-making. The simplest strategy is to set a stop-loss limit, which means setting a lower bound of risky behavior on the basis of an investor’s own ability to resist risks using their own evaluation and analysis. Holistic investors are confused when setting a stop-loss limit since there is no referential information, thus easily leading to a framing effect that results in less income; meanwhile, analytic investors learn or apply the optimal strategy to gain more rewards and savings as they continue pumping when deciding without advice from others. Generally, the best venture capital investment strategy for individuals is to make decisions independently using analytical thinking. However, most people pay more attention to trends and contextual information (holistic thinking style), especially to expert advice and inside information (making no decision on their own). In summary, Study 2 provided corroborating evidence similar to Study 1 in that 59.5% of investor returns were less than or equal to 0%.

Cultural symbols are shared not only visually. Previous studies found that participants who were primed with holistic thinking scored higher on the CHTSS than those who were primed with analytic thinking (Chinchanachokchai & Noel, 2015; Lalwani & Shavitt, 2013). Fu et al. (2007) suggested that priming with subtle references requires insider knowledge. In this way, we believe there are two problems in priming Chinese people with analytic thinking. One is that the effect of priming is not expected, and the other is that the lasting effect of analytic thinking is short. These may be some of the reasons why the main effect of thinking style is not significant. We must admit that the first priming task may interfere with the following manipulations, thus reducing the effect. Therefore, we will experimentally consider the dimension of culture to avoid the manipulation of independent variables.

Study 3

In Study 3, we sought to adopt a more controlled investment paradigm to replicate the results from Study 1 with a different investment domain and another thinking style measurement. To accomplish this aim, we varied the participant nationalities. By manipulating the investment treatments, we should be in a better position to assess whether both thinking style and making decisions on one’s own vary given the control.

Method

Participants and design

Regarding the sample size, we referenced Li et al. (2008) research. The sample consisted of 200 foreign students and mainland students in China. In this sample, 50.5% of the participants were men. Fifty-five percent and 36.5% of the participants were European and from mainland China, respectively. Specifically, a total of 105 European students (90 European and 15 European American), 82 Chinese students (73 from mainland China and 9 from Hong Kong, Macao and Taiwan) and 13 Southeast Asian Chinese participated. The mean age of the participants was 21 years (SD =1.15). Participants were randomly assigned in a 2 (thinking style)×2 (decision) between-subjects factorial design. The researchers invited the participants to participate in a two-session study in exchange for extra monetary rewards. The first session was conducted online, and informed consent was obtained. The participants completed the self-report thinking style measurement after receiving instructions to describe their investment experience, answering questions such as “Do you have any investment experience in stocks, funds, bonds and other wealth management products”, “How many years of investment experience do you have”, “Have you been following the Chinese stock market over the past two weeks”, and “Have you personally participated in the trading and trading of stocks”. Before the next session, the participants who had any related investment experience were identified, and their sessions were terminated to ensure that only novice investors participated. In the second (laboratory) session, the participants were seated at individual computer workstations. For the first half of this session, the participants began by completing the general decision-making style (GDMS) inventory according to the instructions. Under the guise of simulated stock trading, the participants then completed two trading tasks in two hours. At the end of the study, the participants were fully debriefed.

Procedures and measures

Thinking style checking

The Analysis-Holism Scale [AHS] (Choi et al., 2007) is a 24-item scale that captures individual differences in the tendency to think analytically versus holistically (Choi et al., 2007). The sample items include “Everything in the universe is somehow related to each other”, “We should avoid going to extremes”, “The whole is greater than the sum of its parts”, and “Current situations can change any time” and were assessed on 7-point Likert-type scales. The Cronbach’s alpha internal consistency reliability coefficient was 0.87.

Decisions without advice measurements

The GDMS inventory consisted of 25 items that were scored on five-point Likert-type scales, with five items identified for each style: avoidant, dependent, intuitive, rational and spontaneous (Scott & Bruce, 1995). We measured the tendency to make decisions on one’s own by computing the dependent items (e.g., “I rarely make important decisions without consulting other people”, “I use the advice of other people in making my important decisions”, and “I like to have someone steer me in the right direction when I am faced with important decisions”). The Cronbach’s alpha internal consistency reliability coefficient was .89.

Income from investment

We developed a simple task: one-player simulated stock trading with virtual capital of 10,000 RMB. The participants were asked to trade 4 specified stocks that could be traded two times in two hours (corresponding to 5 trading days) following the Chinese stock trading rules of T + 1.² Their rewards were paid according to their rates of return, where a 1% return equaled 1 RMB. In the case of negative returns, participants were required to help the researcher complete a boring task sorting random questionnaires proportional to the level of “debt” as a punishment. We balanced the five trading days of the four stocks on a simulated up/down curve, and the variation was approximately 10% (see Appendix C).

Decisions with advice manipulation

When the investing began, comments about the four stocks were provided to the participants in the decisions with advice group every 20 minutes, with each stock showing two comments as a reference without “objective” information such as the company’s financial situation. The positive and negative comments were balanced among all participants, and they were presented in a randomized order but with two of the same kind of comments at the same time, such as “My experience is that A will go up and up” and “I suggest to hold A longer”; “In my experience, B will gain a lot” and “I suggest to hold B more”; “See C ‘s trend, I think there will be big gains” and “I suggest underweighting or selling C”; and “See D’s trend, I think there will be big gains” and “I would like to suggest underweighting or selling D”. Participants in the decide without advice group had no such information at all and made decisions on their own. To verify whether the participants who received advice truly referred to and used information based on the others’ experiences in their decision, participants were asked “Has the information been helpful or useful to you?”. Those who answered yes were kept in the study (Excluding cases were a total of 4 in the decision-with-advice group those who answered “NO”).

Results

Checking for thinking style

Considering the uncertainty caused by the priming with thinking styles, we tend to describe the differences in thinking styles in terms of cultural differences. Despite random assignments, a t test indicated that there were significant differences (t (198) = −11.93, p < 0.001, 95% CI [-17.65, -12.641]) in the trait thinking score between Western (mean = 4.22, SD = 1.03) and Eastern participants (mean = 5.73, SD = 1.02). Given these differences, we included culture differences as a variable when evaluating the differences in holistic thinking and analytic thinking between the cases.

The effect of thinking styles and making decisions on one’s own on simulated stock trading. It appears that dependent decision makers, as categorized by the GDMS inventory, might be characterized as keen to involve others in their decision-making, and there are clear advantages in doing so (Spicer & Sadler-Smith, 2005). The impact of the dependency will affect our results. Therefore, we examined cultural differences. A t test indicated that the Western participants expressed no more dependency in making decisions (mean = 2.94, SD = 0.58) than the Eastern participants (mean =2.95, SD= 0.72), t (198) = −0.207, p > 0.05, 95% CI [-0.20, 0.16]. Therefore, there was no cultural difference. In addition, the dependent decision was correlated with the return on investment of the stock but not significantly.

The results of a MANOVA (the independent variable is making decisions on one’s own) indicated a statistically significant main effect for those making decisions on their own (F (1,199) = 4.27, p = 0.040, η_p² =0.02) and a statistically significant decision x culture interaction effect (F (1,199) = 29.67, p < 0.001, η_p² =0.14). Simple effects test revealed that there was a significant effect of the making decision with advice for participants with analytical thinking gained significantly less investment income than holistic thinkers(p = 0.001). Compared to the decision-without-advice condition, analytical thinkers gained significantly more investment income than holistic thinkers (p = 0.005). In addition, when primed with analytical thinking, participants who made decision on their own gained significantly more investment incomes than those who made decision with advice(p = 0.001). In contrast, when primed with holistic thinking, participants who made decision with advice gained significantly more investment incomes than those who made decision on their own(p = 0.005). (See Figure 3, the means and standard deviations across experimental conditions are displayed in Appendix D.)

Figure 3.

Investment income for two conditions.

Discussion

The results for Study 3 replicate the effects observed in Study 1 and further reaffirm that making decisions on one’s own is beneficial for investment behaviors similar to that for stocks, with the thinking style having interaction effects. Compared to those in Study 2, the thinking styles in Study 3 were much more stable, and the measurement of investment returns was more realistic. This extends the scope of the hypothesis by further validating the participants making decisions on their own achieving greater returns.

Analytic thinkers tended to diversify their financial assets and gain higher returns than holistic thinkers, who depended more heavily on contextual information, which influenced investment decisions when made without external advice (Spencer-Rodgers & Peng, 2017). When making decisions on their own, they relied on a formal logic approach and were busy resolving contradictions of information by eliminating one of the two conflicting propositions that was useless, while holistic thinkers easily took into account all of the pieces of information (Spencer-Rodgers et al., 2010). In addition, we are not denying the importance of professional experience and knowledge in investment decisions. While traditionally people have preferred to consult with friends or experts, we suggest that novice investors remove the middleman’ and rely on their own self-knowledge when investing (Klein & Shtudiner, 2016).

General discussion

Considerable progress has been made in the study of cross-cultural influences on decision-making. The present research focuses on variations in how and why people from different cultures tend to decide or invest differently. Past research suggests that different thinking styles lead to different cognitive processes. In line with this notion, we conducted three experiments using different paradigms to support our hypothesis that the joint effect of thinking style and making decisions on one’s own will affect individual investors’ venture capital incomes.

Generally, the goals of experimental finance are to understand human and market behaviors in settings relevant to finance (Asparouhova & Bossaerts, 2017). Individuals are realizing the inconsistency between their behaviors and rational theory, and the influence of psychology on people’s decisions is inevitable. It is necessary to explore investment decisions using the psychology domain. Some of the factors that influence decision-making are the framing effect, loss aversion, overreactions, underreactions, overconfidence and demographic factors (Bradbury et al., 2019). We define analytic and holistic thinking as two thinking styles (i.e., analytic vs. holistic thinking) that reflect the reasons for novice investors’ decisions and fill in a gap in the related studies, showing cultural influences on individuals’ decision-making (Yates & De Oliveira, 2016).

Thinking styles, as cultural habits, in some ways reflect cultural environments. It is one of the major dimensions in which significant behavioral differences emerge (Heine, 2010; Nisbett et al., 2001; Triandis, 2007). Several recent studies have shown that the covariation between social orientation and cognitive style is not confined to North America and East Asia. Even within societies that are part of the European cultural tradition, one observes that cultures differing in social orientation also differ in terms of cognitive style (Matsumoto et al., 1998; Varnum et al., 2010).

In general, holistic thinkers are more likely to perceive interrelations among different aspects of an object or an event than analytic thinkers (Choi et al., 2003; Nisbett et al., 2001), and they tend to engage in reasoning involving contradicting ideas that coexist, whereas analytic thinkers tend to engage in reasoning involving contradictions that chooses one of two opposing propositions (Spencer-Rodgers et al., 2010). Compared to analytic thinkers, holistic thinkers display a cyclical (vs. linear) perception of change and a more field-dependent (field-independent) attentional style (Spencer-Rodgers & Peng, 2017). People using analytic thinking were more likely than those using holistic thinking to infer the quality of a product from its price (Lalwani & Shavitt, 2013). Masuda and colleagues have demonstrated that East Asians tend to holistically allocate attention to things and contextual information, whereas Americans selectively attend to objects (Masuda et al., 2008; Masuda & Nisbett, 2001; Senzaki et al., 2014). Confirming the evidence above, our research suggests that giving fewer contexts for holistic thinkers or more for analytic thinkers will interfere with their habitual decision-making patterns, which increases negative effects. Of course, the participants of our study are mainly ordinary investors rather than professional investors. Professional investors often need to combine two ways of thinking.

Research has shown that in cultures that interdependent social orientation, holistic thinkers are more collectivistic and rely more heavily on contextual information than analytic thinkers (Spencer-Rodgers & Peng, 2017; Varnum et al., 2010). As holistic thinkers, the lower threshold in Asians in terms of the perceived relevance of a given phenomenon leads to them considering more available information due to entities in the world not being isolated and independent, whereas North Americans, as analytic thinkers, distinguish important information from other peripheral information by selecting what they perceive, which involves isolating entities from their contexts. Holistic thinking expects future change, and holistic tendencies may lead to the anticipation that trends are capable of change. Studies found that holistic thinkers were less likely to differentiate between types of information than analytic thinkers since they always allocate attention to things that are both peripheral and important. Nevertheless, we must admit that carefully evaluating multiple sources of information is not a bad thing when making a decision (Bradbury et al., 2019). We believe that in complex investment markets, it is useless for a normal person to follow advice from friends or the Internet, as it does not impact revenue. As supported by the research in this paper, the role of such information is reflected in its influence on decision-making and how it causes positive or negative consequences in venture capital investment.

The current paper provides both theoretical and practical information that may be of value for high-risk investments. However, it is also limited in certain respects. One limitation is that Studies 1 and 2 cannot represent or simulate the more realistic investment environment. Another limitation is that using investment income (the direct results of investment) as the dependent variable is quite a bold move, and it seems difficult to manipulate or control all the factors affecting income. This topic is worth investigating in future studies. Related to the current research, the following issues clearly await future research. First, the present study explored the issues using laboratory-based designs, and it will be critical for additional studies on real investments to establish greater validity through methods such as collecting data from real stock markets. However, it is important for future researches to note the impact of the corresponding behaviors of investors in European and American stock markets on their investment returns to support the results found in this paper. Second, we employed different thinking styles and decision treatments, and the design strategy allowed us to isolate direct effects. This can also be expanded to improve the generalizability of the current results by focusing on joint effects to better help novice investors improve their investment returns. The complexity of thinking style is that no one is like a “standard” certain thinking style. In the future, it is necessary to extend our work in the venture capital returns of some more specific thinking style’s (perhaps those with bicultural thinking style). Overall, this paper raises far more interesting and important questions than it answers. We believe that the results documented in this paper will generate further research into the issues of high-risk investments and decisions.

Conclusion

In conclusion, this paper verified our hypotheses through three experiments and is the first to examine whether thinking styles and decisions in investment situations vary as a function of an individual’s behavior. Specifically, in Study 1, we found that coin, card and stamp investors who had high levels of holistic thinking and made decisions on their own obtained the lowest returns, and the preliminary conclusion was simply obtained using self-report measurements whose results are consistent with our hypothesis that thinking styles affect investment. In Study 2, we suggested that people who use analytic thinking to make decisions on their own in the BART earn the most by further assessing risk taking in a more naturalistic setting than usual monetary gambling since it resembles cumulative everyday life risks, and this conceptual similarity was supported (Lejuez et al., 2003). The hypothesis has been addressed by priming the thinking style to provide evidence for a joint effect. In Study 3, we categorized thinking styles by the differences between Eastern and Western cultures and adopted self-developed simulated stock trading to establish an investment environment. By verifying the influences of thinking styles and decision-making on venture capital investments, we reconfirmed the results when decisions were made on one’s own, which are important for further revealing the psychological mechanism of decision-making behavior. We observed that holistic thinkers who weighed the pros and cons of a decision gained more than analytic thinkers when provided referable information and vice versa. These findings have contributed to understanding cognitive style differences and prove that there are interesting cultural differences in investment. They reveal that we should consider this intraindividual discrepancy when communicating risk perception to novice investors.

Footnotes

Appendix A

Appendix B

Descriptive statistics for the univariate tests in study 2 (N = 125)

Dependent variable: income from the BART	Mean	SD	n
Decision with advice
Analytic thinking primed	6.54	5.10	32
Holistic thinking primed	10.93	5.26	32
Decision on their own
Analytic thinking primed	11.99	5.24	30
Holistic thinking primed	8.08	5.58	31

Appendix C

Appendix D

Descriptive statistics for the univariate tests in study 3 (N = 200)

Dependent variable: returns	M	SD	n
Decision with advice
Western culture	−0.02	0.04	49
Eastern culture	0.01	0.04	50
Decision on their own
Western culture	0.03	0.05	50
Eastern culture	−0.01	0.05	51

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: This research was funded by National Natural Science Foundation of China (31671159 & 31371053) and Natural Science Foundation of Tibet (XZ2018ZR G-04).

ORCID iDs

Hao Li

Ting Wang

Notes

Author Biographies

Hao Li is a PhD candidate in School of Cognitive and Psychological Sciences of Peking University. His research interests include creativity and critical thinking.

Ting Wang is a PhD candidate in School of Cognitive and Psychological Sciences of Peking University. Her research interests include social, money psychology and cyberpsychology. She is trying to investigate mechanisms underlying behavioral decision making.

Yi Cao is a PhD candidate in School of Cognitive and Psychological Sciences of Peking University.

Lili Song is a PhD candidate at the Institute of Psychology, Chinese Academy of Sciences. Her research interests include positive organizational behaviors and think styles.

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