Developing An Expected Return-Based Optimal Prudence (EROP) Model: A New Framework For Digital Investment Decisions Among Millennials

Abstract

The convergence of digital transformation and financial services has created unprecedented investment opportunities for Generation Y, but the persistent gap between digital literacy and investment decision-making continues to challenge optimal investment returns. This study introduces and empirically validates the Expected Return Based Optimal Prudence (EROP) model as a new mediation framework that addresses the critical intersection between digital financial literacy and the quality of investment decisions among 389 Generation Y digital gold investors in Central Java, Indonesia. Using structural equation modeling with partial least squares (SEM-PLS), the EROP model successfully mediated the relationship between digital financial literacy and digital investment decisions (β=0.066, p<0.05), explaining 60.3% of variance with excellent model fit (SRMR=0.059, GoF=0.573). Financial self-efficacy emerged as the strongest predictor (β=0.318, p<0.001), while technology adoption showed no direct effect on investment decisions (β=0.025, p>0.05), revealing the paradox of technology facilitation. The EROP model represents a paradigmatic advance in the behavioral finance literature, establishing the formation of prudential expectations as a critical mediation mechanism between digital competencies and investment outcomes.