Abstract
Traditional finance suggests that investments made by rational behaviors investors examine risk and return before decision making to gain maximum profit later behavioral finance challenge traditional finance and introduce psychological factors affect decision making. The aim of this research paper is to explore how behavioral biases affect investment decision making under uncertainty. Dependent variable investment decision making is a composite activity, it never be made in a vacuity by depending on personal resources. Based on this study investment choices alternatives influence by human rational and irrational behavior, therefore, examine the impact of behavioral finance in the decision-making process. Behavioral finance phenomenon variables; heuristic, prospects, personality characteristics, feeling, moods and ecological factors explore under this research. Overconfidence, Representativeness, Anchoring, Regret Aversion, Hindsight, Herding Effect and Home Bias included in investors psychology behaviors. Survey questionnaire tool used to collect sample to conduct quantitative research. To test the hypothesis Regression analysis run by the SPS software. Findings revealed that there was an effect of behavioral biases on investment decisions. Empirical results concluded investment decision making influenced by heuristic behaviors more than prospects and personality characteristics. The originality of this study, it is very beneficial for investors and financial institutions to make decision by observation of psychological factors.
Highlights
Psychological and cognitive concept integrates with finance urge new field behavioral finance
Some other research show that prospects theory most effective in decision making because 70% respondents are loss aversion and 61% are regret aversion from sample size as well as the results of our research show positive effect of prospect theory on investment decision, so our second alternative hypothesis about prospects theory is accepted with the sig. value of 0.046
H2 is belong to prospects behavior and investment decision making, so to test this hypothesis some sub-variables of prospects; loss aversion and regret aversion are empirically tested and some sub-variables like mental account and selfconfidence are descriptive tested by logical reasoning in theory building
Summary
Psychological and cognitive concept integrates with finance urge new field behavioral finance. [21] Behavioral finance attempts to investigate the psychological and sociological issues that influence investment decision making process of individual and institutions. Factors of behavioral finance like overconfidence, fear, cognitive and emotions affect the investments strategies and investment decisions making process. Behavioral finance not just influences to traditional theories but integrate with return of investment growth because investment decision making depend on intrinsic factor investor behavior. Impact of behavioral finance in decision making about stock markets and capital markets is observed in this research paper. The purpose of this paper is observing the impact of behavioral finance on the investment decision making. There are many anomalies in the behavioral finance that can influence the decision making but in this paper some anomalies discussed that identify the Muhammad Atif Sattar et al.: Behavioral Finance Biases in Investment Decision Making whole phenomenon of impact of behavioral finance on investment decision making process
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