Cognitive Biases of Trained Finance Professionals in India: An Exploratory Analysis

Abstract

Cognitive biases among trained financial professionals may lead to mismanagement of investment decision-making or inadequate utilization of resources. Not many studies in this domain are available in the Indian context. The objective of the study is to find out the main cognitive biases among finance professionals in India. Using my diverse professional online networks, 162 trained finance professionals’ survey responses are gathered for this study. I used Principal Component Analysis (PCA) method since it is suitable for this study. The PCA method allows to find out the critical group of factors incorporated in the questionnaire and derive the significant factors that have a meaningful impact on the subjects. Deploying principal component analysis (PCA), the paper finds that trained professional managers are exposed to diverse degrees of biases such as representative, confirmation, conservative, framing, hindsight, and availability biases. However, out of all such biases the representative bias is observed to be most prominent among the trained finance professionals in India. The findings of this study extend the scope to examine the effect of such cognitive biases on investment decision-making.