Behavioral Finance Theory

In Partial requirements for

(Title of theory)

(Names of members)

(Date)
 I. Title

II. Background

 Rationale

III. Methodology

IV. Concept and components of a theory

V. Processes of the theory

VI. Conclusion
 Developing a Theory in Academic Research
INTRODUCTION Studies with strong theoretical perspectives are often regarded as adding value to any
field of learning. It is therefore essential for scholars and researchers in various academic fields to
develop strong skills in theory development. A well-crafted theory supports logical thoughts and helps to
make sense of the reality that re-searchers struggle to present. Scholars of information science, for
example, have developed various theories over the years (Chatman, 1999; Cole, 2011; Dervin, 1998;
Kuhlthau, 1991), and new theories that point to new directions in the study of information science have
also emerged (Spink & Heinström, 2011; Sin, 2011; Jaeger & Burnett, 2010). Despite the developed
theories within this field, it still remains a difficult task for some emerging scholars to clearly articulate
new theories from research studies (Pettigrew & McKechnie, 2001). Many researchers and scholars in
various fields may be battling with similar problems because there is no one way or an agreed upon
pattern of developing a theory. Various scholars provide variations in their methods of developing a
theory (Smith & Hitt, 2005). The lack of a clear road map for theory development makes the process
“one of the most frustrating and arduous tasks in which a scholar engages” (Cunningham, 2013, p. 3).
The main objective of this paper is to bring together different ideas of scholars of theory development in
order to help researchers find paths to follow in their process of developing a theory. In addition, in a
highly competitive academic environment where publish or perish is the norm, it is essential for future
scholars to be aware of factors that may increase their chances of getting their work published. The
ability to design a study that contributes to theory is obviously a major factor. This paper reviews
literature to collate the different views of scholars on what makes a good theory and how it can be
developed. The paper explains the concept of a theory and the different components that make up a
theory. It discusses the different processes of theory development by emphasizing what a theory is and
what a theory is not. A theory needs to benefit the progression of research. Therefore, this paper
examines the role of theories in academic research and their importance to various academic fields,
especially the field of information science. It contributes to the understanding of the process of theory
development from different perspectives. It is hoped that this paper may be of benefit to established
researchers who may be struggling with theory development, and especially younger academics who are
the future of scholarship in the field of information science and other disciplines.

METHODOLOGY

Various searches were conducted to look for articles on theory development. Search terms such as
developing a theory, theory development, how to develop a theory, and theory development in
information science were used to identify studies conducted on this subject area. Electronic databases
such as EBSCOhost, Google Scholar, and other institutional library databases were used in the search for
materials. The major sources retrieved and used for this review were journal articles. Some books that
contributed to the discourse on theory development were consulted. About 81 sources were collected
but only 38 journal articles and 20 books were used for this review because of their relevance to the
topic and scope of the paper. However, there was no limit set for the year of publication of the sources
to be used because the process of theory development is as old as the research process itself. In
addition, widening the scope of the publication period of sources to be included may help in gaining
insights into diverse views on the subject and the changes in those views over time. The major sources
included in this review were drawn from a variety of disciplines. It must also be noted that this paper is
not a review of different theories; rather, it is a review of ideas presented by some scholars and
researchers on what a theory is and the process of developing a theory.

CONCEPT AND COMPONENTS OF A THEORY

Different researchers have presented different definitions of a theory (Odi, 1982; Silverman, 2006; Vogt,
1993; Babbie, 1992; Schwandt, 1997; Merton, 1957). According to Corley and Gioia (2011), a theory is a
relationship of concepts that shows how and why a phenomenon occurs. It is made up of “constructs
linked together by propositions that have an underlying, coherent logic and related assumptions” (Davis,
Eisenhardt, & Bingham, 2007, p. 481). Garver (2008) suggested that theories vary in their specifications.
Some theories are termed as knowledge while others are contrasted with knowledge; some can be
tested, others cannot; some theories are idea-based while others are application-based. While some
theories help to further understanding, others can be barriers to understanding, Garver concluded. For
Buckland (1991), a strong theory is based on perception; whatever theory matches one’s perception
becomes a good theory. Davis et al. (2007, p. 481) brought together the views of some scholars of
theory development and enumerated four elements of a theory. These are • constructs • propositions
that link those constructs together • logical arguments that explain the underlying theoretical rationale
for the propositions, and • assumptions that define the scope of the theory. In the same vein, Wacker
(2004) identified four properties that should characterize a good theory: “formal conceptual definitions,
theory domain, explained relationships, and predictions” (p. 631). Wacker defines a theory as a link that
creates relationships of concepts. Various researchers define a theory based on their perception of what
a theory does. According to Sutton and Staw (1995), the lack of a unified definition among scholars of
what a theory is has often made it difficult to develop a strong theory. This is evident in many
researchers’ use of terms such as model, paradigm, framework, and theory interchangeably to denote
the same thing. The distinction between a paradigm, a model, a framework, and a theory should be
made so that readers can clearly understand the distinctions. In order to develop a good theory, there
are some identifiable features that must be considered in a study. Some of these features could be
drawn from Wacker (2004) who proposed that a theory should be unique, in the sense that it should be
clearly distinguished from other theories; it should be conservative by standing the test of time, which
means it should only be replaced by a new superior theory. A good theory should be worthy of being
generalized, applicable to other disciplines, and capable of producing hypotheses and generating
models. An example of such a theory is the diffusion of innovation theory (Rogers, 1995), which led to
developing more superior theories that shaped other theories. Diffusion of innovation theory has also
been applied in a variety of disciplines (Durante, 2011; Osareh & Wilson, 1997; Patterson, Shaw, &
Masys, 1997). Schroeder (2008) agrees with Wacker (2004) that a good theory should be tested,
confirmed, refined, or even refuted. Glaser and Strauss (1967), however, have a rather stronger position
on the elastic limits of a theory. They contend that a theory that is deeply rooted in data cannot be
easily refuted or undone by another theory. Such theories stand the test of time regardless of whatever
modifications or reformulations they undergo. Glaser and Strauss pointed to grounded theory, in
contrast to theories that are based on ungrounded assumption which they referred to as products of
logical deduction. They believe such theories are mostly altered by subsequent logic that counters their
assumptions. Grounded theory has been used in many studies to develop new theories (e.g., Goodall,
Newman, & Ward, 2014; Urquhart & Fernández, 2013; Wolfswinkel, Furtmueller, & Wilderom, 2013).
From the aforementioned assertions, Glaser and Straus seem to be more concerned with building
theory using qualitative data rather than quantitative. However, many studies have applied quantitative
data to build theories and such studies may not be simply dismissed as based on ungrounded
assumptions as Glaser and Straus seem to suggest. Both qualitative and quantitative data can lead to
good theories if processes of effective theory development are followed.

PROCESSES OF THEORY DEVELOPMENT

In developing a theory various consideration have to be made. The discussion below presents the views
of researchers and scholars on the processes of developing a good theory.

4.1. Demonstration of Relationship among Variables Sutton and Staw (1995) believe a strong theory
should be simple and interconnected; it should be able to predict, to explain, and to delight. In other
words, theories begin with insights that have to be developed into concepts and relationships. These
concepts and relationships are then connected and integrated into a whole. Insight alone, without
conceptual connections, cannot make a theory (Rindova, 2011). Therefore, developing a theory is more
than merely drawing a list of variables; the relationship between or among the variables should be
clearly demonstrated (Whetten, 1989). This means the author needs to have the read-ers in mind when
constructing a theory. According to DiMaggio (1995), for a theory to be considered relevant, the author
has to configure propositions that readers can comprehend. Propositions are the statements that help
to explain the relationships between the different constructs of a study. Through these constructs’
hypotheses are drawn. Bacharach (1989) made the distinction between propositions and hypotheses
which are oftentimes mistaken to be synonymous. According to Bacharach, “propositions state the
relations among constructs, and on the more concrete level, hypotheses (derived from the propositions)
specify the relations among variables” (p. 500). Therefore, it is very essential that an author should
explain these propositions so that any theory developed can be understood based on the clear
statements of its propositions. Since a theory is a set of concepts, definitions, and propositions used to
explain events and situations, Michie and Prestwich (2010) believe that a good theory should draw a
systematic relationship. Such a relationship will advance the understanding of the situations and events
it claims to explain. This can be done through the development of paradigms. A paradigm is something
which makes sense of a particular area of learning. Through a paradigm, areas of studies and the process
of carrying out the studies are determined. A paradigm serves as a guide to researchers in their various
fields of study (Olsen, Lodwick, & Dunlap, 1992). Olsen et al. (1992) identified two types of paradigms
with which theories can be developed: scientific paradigms and social paradigms. The scientific
paradigm is the frame of thoughts that guide researchers with scientific perspectives. This paradigm is
mostly applied by natural scientists in their intellectual activities. Social paradigms, on the other hand,
are used to interpret how people make sense of their social lives in their communities or environments.
This type of paradigm guides scholarship mostly in the social sciences and humanities. It must be noted
that paradigm is a concept that has been used and explained differently by various scholars (Guba, 1990;
Kuhn, 1970). There is no one way of defining a paradigm. However, a paradigm, as used here in relation
to a theory, is the framework by which a theory can be developed. Whetten (1989) mentioned four
essential elements that are needed to make a theory complete. These elements are the what, when,
how, and why of the theory.

The what looks at the judgments made in including the right factors to make up the theory. Two criteria
can be used to determine the what of the theory. The first is the comprehensiveness of the theory: Does
it contain all the necessary factors such as variables, concepts, or constructs? The second is parsimony:
Are there irrelevant factors that add nothing new to the theory? If such factors exist, they must be
removed. The when describes the factors that are added at the time of creating the theory. According to
Whetten, “when authors begin to map out the conceptual landscape of a topic they should err in favor
of including too many factors, recognizing that over time their ideas will be refined. It is generally easier
to delete unnecessary or invalid elements than it is to justify addition” (p. 490). This means adding more
factors such as constructs, variables, or concepts at the beginning of the research process and allowing
for the possibility that they may be deleted later is better than adding fewer factors at the beginning,
only to realize later that more are needed. Making justifications for such additions at a later stage may
prove difficult. The how of the theory seeks to determine how the different factors are related. This is
sometimes presented in a form of a diagram or by linking terms or variables using arrows. This is also
known as a model. Graphical representation of thoughts can help to bring clarity to the meaning of
concepts. The why of the theory will bring out an explanation of the purpose for which the factors were
chosen. The big question to be asked here is: Why should the theory be accepted or be seen as useful by
those in the field who look at it? According to Whetten (1989), the logic behind the creation of the
theory is more significant than the data of the theory. The question that anyone developing a theory
should ask is: Do my propositions make sense in this field of studies? Readers should be able to assess
the theory based on the sense it makes, not on the data it presents, Whetten concluded. Whetten’s
(1989) emphasis on the logic behind the creation of a theory rather than the data of the theory is a
sharp deviation from the emphasis of the grounded theory of Glaser and Strauss (1967), which lets the
data guide the development of the theory. These are two opposing views that present some challenges
to researchers in their choice of research method. However, the method to be used depends on one’s
research orientation.

4.2. Clear Definition of Concepts Kuhn (1959) proposed that, in order to understand and create a theory,
the theorist must bring together previous knowledge and rearrange it. According to Kuhn, “the scientist
must usually rearrange the intellectual and manipulative equipment he has previously relied upon,
discarding some elements of his prior belief and practice while finding new significances in and new
relationships between many others” (p. 22). This means in the process of developing a theory, some
elements of the previous knowledge may be discarded, while newly found concepts are developed into
significant relationships. Kuhn believes that new ideas come with some reordering of already known
ideas. Therefore, for a paper to exhibit strong theory, it has to begin with a few conceptual statements
that are built in a logical manner. For a theory to be significantly developed using statistical data, for
instance, concepts must be measured appropriately. In the process of theory development, attention
must be given to the definition and progression of concepts (Wacker, 2004). Conceptual definitions must
be given using the appropriate vocabularies which are representative of the field of inquiry. For
example, in developing a user-centered theory in the field of information science, the definition of a
user is necessary to give the perspective of the unique meaning of the word in the field.

4.3. The Constituents of a Theory Mills (1959) believes that developing a theory is an intellectual craft
that involves the use of one’s life experience. This means that the theorist enters into the intellectual
work by personally getting involved in the product that is worked on. Throughout the process, the
theorist will continue to examine and interpret the work by applying the life experience and knowledge
acquired. This is to enable the researcher to apply all the necessary elements that constitute a theory. In
order to have the elements needed in a theory, Mills presented the following suggestions to theory
developers: 1. Make formal theory and build models as well as you can. 2. All facts and details, together
with their relationship, should be well examined. 3. All works should be related closely and continuously
to historical reality. 4. Make it your task to define the reality without assuming someone else will do it
for you. 5. Formulate the problems in their own terms and try to provide solutions to the problems. (p.
224). In order to highlight the constituents of a theory, Sutton and Staw (1995) outlined five elements of
a research paper that are often mistakenly taken as theory while in the actual sense they are not.
According to these authors: 1) references are not theory; 2) data are not theory; 3) lists of variables or
constructs are not theory; 4) diagrams are not theory; 5) hypotheses or predictions are not theory. They
argued that making references to a list of theories in an article is not in itself a theory because there is
no explanation of the logical link between these references. According to Sutton and Staw (1995), when
theoretical works are cited in an article or in a study, such theories should be shown to have a
relationship to the new framework. Mere data presented in a study cannot be termed as theory in
themselves.

4.4. Level of a Theory In building a theory, the levels at which the generalization is made need to be
described clearly. Klein, Dansereau and Hall (1994) stated that, in trying to show the level of a theory,
members of a group under study need to be either homogeneous, independent, or heterogeneous. This
should be part of the prediction of the construct of the theory. If a group is chosen as the level of study
for developing a theory, the prediction to be made should be based on the composition of the group. If
there is similarity in the composition of the group, all members can be characterized together. The
important factor here is the group as a variable, and not the individual members of the group. On the
other hand, if the specification of the level of the theory is based on the individual, then the prediction
should be made looking at the individual as independent of the influence of other group members. On a
similar note, Kalnins (2007) also stressed the importance of the selection process in theory
development. He argued that sample selection, when carried out appropriately, is capable of explaining
the type of empirical relationship that takes place during the process of theory development.
Considering selection issues first will help reveal data that are either consistent or on par with the actual
cause of relationship observed during the research process.

CONCLUSION

This paper discusses the concept and components of a theory, the process of developing a theory, the
role of theories in academic research, and the implications to emerging scholars. It finds that in
developing a theory, relationships among variables need to be demonstrated, concepts clearly defined,
and elements of a theory explained. It also stresses the need to give more attention to the levels of a
theory determined by the sample and population of the study. The paper shows that scholars differ in
their definition of a theory, which has led them to use terms such as model, paradigm, framework, and
theory interchangeably. The elasticity of a theory has also been a subject of debate. Some scholars
believe that good theories should be internally consistent but open to refutation. Others are of the
opinion that a good theory, one that is worth its name, cannot be easily refuted or undone by another
theory. However, scholars and researchers agree that a strong theory should stand the test of time.