Abstract
Investors usually rely on the first-hand information to take their investment decisions. Investors are prone to many types of heuristics and bias which can lead to indecisive situations or irrational behavior and affect their performance. Indecisive state of mind of investors is attributed due to cognitive dissonance as it differs from their belief and the facts they come in reality. Mental accounting has its own advantages of meeting the investor’s goal on time and allocating resources effectively to achieve each of their investment objectives, on the contrary it can also lead to poor portfolio management and performance. The current study is conducted in order to understand the influence of availability heuristic influence on cognitive dissonance and rational behavior through mental accounting bias as a mediating factor exclusively on Fast Moving Consumer Goods (FMCG) investor’s decision making in stock market. Data was collected by purposive sampling method using self-administered questionnaire from 614 FMCG investors through 15 stock broking firms registered in Hyderabad city, tools like correlation, analysis of variance, Cronbach Alpha test, linear regression and mediation are used for data analysis. The results reveal that availability bias, cognitive dissonance and rational behavior are highly correlated to one another. Availability bias influence on cognitive dissonance and rational behavior of FMCG investors through mental accounting bias is negligible. Though many studies have accepted the major role played by mental accounting bias and few against it in our study it is proved to be negligible in case of defensive sectors of FMCG investors.
Highlights
Behavioral finance integrates psychology with finance as it deals with humans and need to comprehend the behavior of individual investors in the stock market
Demographic information is explained with the help of descriptive statistics and in the second part with questions related to availability, mental accounting, cognitive dissonance biases and rational behavior of investors
The second part respondents availability, cognitive dissonance, mental accounting bias and rational behavior of investors was measured with 21 questions to test their tendency to be influenced and their level of agreement with each type of bias using five point Likert scale with 1 as Strongly agree to 5 as Strongly disagree
Summary
Behavioral finance integrates psychology with finance as it deals with humans and need to comprehend the behavior of individual investors in the stock market. Heuristics comes to rescue of the investors undue pressure ,as they aim to solve problems or self-explore by exercising cognitive and more sensible approach even though, it is not assured to be reasonable, accurate, and realistic. It is usually recommended in circumstances when one cannot find the feasibility of arriving at the best possible answer. Mental Accounting bias mediates effect of availability on rational behavior is concluded (H5)
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