When analyzing the investment decisions of private investors, we argue that the investment
choice is essentially indifferent from any other budget allocation decision, whether product purchases
or transportation modes. The investment choice can therefore be seen in a general choice
theory framework. We follow the discrete choice framework as proposed by Ben-Akiva and
Lerman (1985), where a choice is represented a series of sequential steps: (1) definition of the
choice problem, (2) generation of alternatives, (3) evaluation of attributes of alternatives, (4)
choice of the optimal alternative and (5) implementation of the choice. An investment choice can
easily be interpreted in a choice framework:
(1) Definition of the choice problem. The investor operates under a budget constraint. After
consumption in a certain period, a limited amount of money can be invested. The choice
problem is defined as the maximization of utility from this decision.
(2) Generation of alternatives. Alternative investment products are available to the investor
(stocks, bonds, etc.).
(3) Evaluation of attributes of alternatives. The investor evaluates which investment opportunity
has the highest utility based on a series of attributes that reflect the investor’s investment
approach. She evaluates each attribute and assigns a certain amount of utils (measurement
unit of utility) to that attribute.
(4) Choice. Total utility of an investment is a function that combines the number of utils each
alternative has. The investor chooses the investment combination that offers highest utility.
(5) Implementation. The investor places orders for the best alternative.