Definition
The Likert Scale is a rating system commonly used in finance and other areas of research to measure responses, attitudes, or opinions towards a specific topic. It typically includes a set of possible answers ranging from one extreme to another, such as “strongly disagree” to “strongly agree”. It allows for degrees of opinion, rather than a simple yes/no answer.
Key Takeaways
- The Likert Scale is a popular survey tool used in research to measure participants’ attitudes, opinions, or perceptions towards a particular subject. It typically consists of five or seven point scales, however, scales can potentially be more or less.
- It was developed by psychologist Rensis Likert, and its structure provides a range of responses which can offer a more accurate depiction of a respondent’s opinion. This helps researchers to gather nuanced data during their surveys or questionnaires.
- Despite its versatility, one should remember that the Likert Scale has its limitations. It is open to personal interpretation and bias, meaning the response may not always provide an accurate reflection of the participant’s view. Also, averaging or comparing Likert Scale data can often be challenging due to its ordinal nature.
Importance
The Likert Scale is an important concept in finance and, more broadly, in several other disciplines such as social sciences and market research, because it provides a quantitative means of measuring subjective attitudes and opinions.
The scale, typically featuring five to seven points, allows respondents to indicate their level of agreement or disagreement with various statements, resulting in data that can be analysed statistically.
This scales’ crucial role in areas such as customer satisfaction surveys, employee engagement surveys, or brand loyalty assessments enables companies to make better decisions and build more effective strategies.
Its ability to turn qualitative opinions into quantifiable data allows businesses to understand their performance, their customers’ needs or their employees’ satisfaction well.
Explanation
The Likert Scale, developed by psychologist Rensis Likert, serves a significant purpose in various fields, including finance, to gauge opinions, attitudes, or behaviors with a degree of quantitative precision. Typically presented in a five or seven-point scale format, its main objective is to measure subjective or intangible attributes than can’t be directly measured.
This would include sentiments such as customer satisfaction, employee engagement, or risk tolerance. By assigning a numerical value to these subjective measures, analysts can quantify and analyze the data statistically.
In finance, the Likert Scale is often utilized in market research or surveys to assess consumer perceptions towards specific products, services, or company branding. It also allows financial advisors to measure a client’s risk tolerance levels based on their responses, aiding in crafting suitable investment strategies.
In essence, it is a tool for capturing complex emotional or subjective data and transforming it into quantifiable information that can support decision-making processes.
Examples of Likert Scale
Customer Satisfaction Surveys: Many companies and businesses use the Likert scale in customer satisfaction surveys. For example, a restaurant might ask its patrons to rate their overall dining experience on a scale of 1 (very dissatisfied) to 5 (very satisfied).
Employee Job Satisfaction Surveys: Organizations often use a Likert scale to measure employee satisfaction or to gauge opinions about company policies. For instance, employees might be asked to rate statements like “I feel valued in my job” or “My workload is manageable” on a scale from “Strongly Disagree” to “Strongly Agree.”
Market Research: A financial firm may use a Likert scale to gather opinions on an investment product or a service. Participants might be asked to rate their level of agreement with statements like “The product offers a good return on investment” or “I trust this company with my money”. This can help the company evaluate perceptions and consider improvements.
FAQs regarding Likert Scale
What is a Likert Scale?
A Likert Scale is a type of rating scale used to measure attitudes or opinions. With this scale, respondents are asked to rate items on a level of agreement.
Where is a Likert Scale commonly used?
Likert Scales are extremely useful in people-oriented fields like psychology, social sciences, and also widely used in market research, where factors such as customer satisfaction and employee engagement are analyzed.
What are the components of a Likert Scale?
The typical components of a Likert Scale include a series of potential choices related to the subject or topic, the statement or question being posed to the respondent, and a balanced range of response options such as ‘strongly disagree’, ‘disagree’, ‘neutral’, ‘agree’, and ‘strongly agree’.
How to analyze data from a Likert Scale?
The most common way to analyze Likert Scale data is by assigning scores to each response and then calculating a mean or median score. These scores can then be used for further statistical analysis.
What are the disadvantages of using a Likert Scale?
The main disadvantage of a Likert scale is that the difference between each value is usually unknown. Also, the usage of the scale can cause bias as people tend to avoid extreme answers.
Related Entrepreneurship Terms
- Survey Research
- Quantitative Data
- Rating Scale
- Ordinal Data
- Psychometric Testing
Sources for More Information
- Investopedia: This site offers a wide range of definitions regarding financial and statistical concepts and terms, including the Likert scale.
- Britannica: An online version of Encyclopaedia Britannica, covering various topics including statistics and the Likert scale.
- Simply Psychology: This site covers a wide array of topics and terms in psychology, which includes the Likert scale in its subject matter.
- Statistics How To: This resource provides a broad range of statistical concepts and definitions, including the Likert scale.
