EFFECT OF BEHAVIORAL BIASES ON INVESTOR PREFERENCES OF TAX SAVING INSTRUMENTS

Abstract

The concept of rationality, has been studied in many theories till now but a new challenge in the field has emerged, Behavioral biases. The world today has recognized the relevance of behaviorism in decision making. The empirical evidence of stock market investors being influenced by Behaviorism is in abundance, but the database fails to present such information about behavioral impact on tax saving instruments. This study is an attempt to unveil the effect of biases on the part of investors while choosing tax saving instruments and add to the existing knowledge of literature on behavioral finance. A sample survey has been conducted through a structured questionnaire incorporating the convenience sampling technique. The biases selected from the behavior finance literature has been kept limited to Herd Behavior and Over Confidence pertaining to lack of literature. Chi square test has been used for the test of hypothesis. A significant association can be seen among age groups and their tendency to be biased. The findings of the study show an influence of biases in the selection of tax saving avenues which differ on specific demographic terms i.e., Age Group. Hence, a cogent argument can be placed on the relevance of behavior biases in tax saving decisions. KEYWORDS: Behavioral Biases, Herd Behavior, Investment Behavior, Over Confidence, Taxation. JEL Classification Code: D14, E20, H24, P30.