The intellectual starting point for the study is a rejection of one of the oldest assumptions in finance: that individual investors behave as rational actors whose choices flow purely from financial calculation. Decades of research in behavioral finance have dismantled that picture, showing that emotions, cognitive shortcuts, and stable personality dispositions all shape how people allocate their money. The authors focus on the Big Five personality traits, the dominant framework in contemporary personality psychology, which describes human temperament along five broad dimensions: openness to experience, conscientiousness, extraversion, agreeableness, and neuroticism. Originally formalized by Paul Costa and Robert McCrae in the early 1990s, the five-factor model has been shown to predict everything from job performance to coping styles, and a growing body of work suggests it also colors how investors gather information, tolerate risk, and react to gains and losses.

The ostrich effect itself was given its canonical definition by economists Nir Karlsson, George Loewenstein, and Duane Seppi in a 2009 paper in the Journal of Risk and Uncertainty. Studying how investors track their portfolios, they found that people are more likely to check on their investments when markets are rising than when they are falling. In other words, attention to financial information is selective: pleasant news draws the gaze, while threatening news triggers avoidance. Earlier work by Dan Galai and Orly Sade in 2006 had already shown a related pattern in the pricing of financial assets, finding that investors demand a premium for securities whose values are harder to monitor, effectively paying to avoid the discomfort of watching losses accumulate. The effect has since been detected in fixed-income markets, in natural experiments comparing disposition behavior, and in studies of financial attention frequency and trading activity.

What remained missing, the researchers argue, was a validated measurement tool. Previous studies had inferred the ostrich effect from observable behavior, such as login frequencies on investment accounts, but no psychometric scale existed to capture the underlying psychological tendency directly. Building such an instrument is a demanding process. Following established guidance on scale development, including the widely cited ten-step framework published by Stephen Carpenter in Communication Methods and Measures, the team generated an initial pool of items designed to tap the core of the construct: the deliberate avoidance of potentially negative financial information. The items then passed through the standard gauntlet of psychometric testing, in which statistical procedures refine the item pool, check that the items hang together as a coherent dimension, and confirm that the resulting scale behaves as theory says it should.

With the new scale in hand, the researchers turned to their central question: does personality shape the ostrich effect, and does the ostrich effect in turn shape investment decisions? To answer it, they collected survey data from individual investors and subjected the hypothesized relationships to structural equation modeling, a family of statistical techniques that can estimate networks of direct and indirect effects among latent variables, meaning constructs like personality traits that cannot be observed directly but are inferred from questionnaire responses. The authors employed the partial least squares variant of the method, following the reporting standards laid out by Joseph Hair and colleagues, and took precautions against common method bias, the distortion that can arise when all data come from self-reports gathered at a single time.

The results paint a nuanced portrait of which personalities bury their heads in the sand. Three of the five traits showed a positive influence on the ostrich effect: conscientiousness, extraversion, and openness to experience. The conscientiousness finding may appear counterintuitive at first glance, since conscientious people are typically organized and deliberate, but the authors suggest that the trait’s association with goal protection and discomfort with negative feedback may drive avoidance of information that threatens financial self-image. Extraverted investors, who are socially engaged and optimistic, may similarly prefer not to dwell on losses, while open investors’ attention patterns may interact with information seeking in complex ways. Whatever the precise mechanisms, the study establishes that these three traits predict a stronger tendency to look away from unwelcome financial news.

The remaining two traits moved in the opposite direction. Agreeableness and neuroticism both showed a negative influence on the ostrich effect, meaning that investors high in these characteristics were less prone to information avoidance. The neuroticism result is particularly striking because it inverts a common expectation. Neurotic individuals experience anxiety and emotional volatility, and one might assume they would flee from distressing portfolio information most eagerly. Yet the study’s data indicate the reverse: heightened sensitivity to threat may actually keep anxious investors vigilant, compelling them to monitor their investments rather than ignore them. This interpretation aligns with earlier research on personality and information behavior, including Jannica Heinstrom’s work on how different temperaments approach seeking and avoiding information, and with studies linking neuroticism to heightened attention to negative stimuli.

Perhaps the study’s most consequential finding concerns mediation. In statistical terms, a mediator is a variable that transmits the influence of one factor onto another, explaining how or why an effect occurs. The analysis showed that the ostrich effect serves as a mediator in the relationship between the Big Five traits and investment decisions. Personality, in other words, does not only influence investment behavior directly; part of its power flows through the psychological habit of avoiding negative financial information. An investor’s disposition shapes whether she watches or looks away, and that watching or looking away then feeds into the choices she ultimately makes about her money. This pathway gives the ostrich effect a central position in the architecture of investor psychology, elevating it from a curiosity of market data to a mechanism that helps explain how personality becomes destiny in financial life.

The practical implications extend well beyond the laboratory. For investment firms, financial advisors, and regulators, the findings suggest that client profiling should account not only for risk tolerance and financial literacy but also for information-avoidance tendencies, which the new scale now makes measurable. An advisor who knows that a client scores high on the ostrich effect can design communication strategies that counteract avoidance, ensuring that critical portfolio information actually reaches the investor. The study also speaks to the Indian context in which it was conducted, where surveys by the Securities and Exchange Board of India have documented a rapidly expanding but still maturing base of individual investors who may be especially vulnerable to behavioral pitfalls. Understanding which personality profiles are most susceptible to selective attention could inform investor education programs that teach people to confront, rather than evade, uncomfortable financial realities.

For the research community, the study offers both a tool and a template. The validated ostrich effect scale opens the door to replication across cultures, asset classes, and market conditions, allowing researchers to test whether the personality pathways identified here hold in other populations. It also invites longitudinal work that could establish whether information avoidance causes poorer investment outcomes over time, a question the present cross-sectional design cannot fully settle. What the study makes unmistakably clear, however, is that the rational investor of classical economic theory never existed in the wild. Real investors are bundles of temperament, emotion, and attention, and sometimes the most important financial decision they make is not what to buy or sell, but simply whether to look.

Subject of Research: The role of the ostrich effect, a psychological bias of avoiding negative financial information, in linking Big Five personality traits to individual investors' investment decisions

Article Title: Ostrich effect: scale development and unveiling its role in investment decision

Article References: Tiwari, P., Asma, A., & Singh, B. K. (2026). Ostrich effect: scale development and unveiling its role in investment decision. International Review of Economics, 73(2), Article 37. https://doi.org/10.1007/s12232-026-00551-z

Image Credits: AI Generated

DOI: 10.1007/s12232-026-00551-z

Keywords: ostrich effect, behavioral finance, Big Five personality traits, investment decisions, scale development, structural equation modeling, information avoidance, financial attention, individual investors, psychometrics, neuroticism, economic psychology