Abstract
As per classical economic theory, humans are completely rational decision makers who carefully evaluate all facts and evidences before taking decisions that aim at maximizing outcomes. However it has been found that in real life humans are not totally rational, rather they are influenced by various behavioural factors while making decisions. Behavioural Finance has thus emerged as an emerging field that studies the influence of psychology on financial decisions. However, it still remains to be investigated whether the impact of behavioural factors is homogenous on all individuals or whether the demographic and psychographic characteristics of the individuals in any way influence the behavioural investment decision. This research takes up one demographic variable, gender, and attempts to investigate the extent to which gender differences influence behavioural investment decisions.
Highlights
Literature ReviewAfter many decades of supremacy, the assumption of human rationality was challenged by a new generation of researchers headed by Daniel Kahneman and Amos Tversky, who in their first research publication on the subject in 1974 discussed “Judgement under Uncertainty : Heuristics and Biases”
Behavioural Finance has emerged as an emerging field that studies the influence of psychology on financial decisions
Further in 1979, Kahneman and Tversky brought to public attention their new “Prospect Theory” in the journal Econometrica, which further challenged the rationality argument and entirely changed the way in which investment decision making was looked upon
Summary
After many decades of supremacy, the assumption of human rationality was challenged by a new generation of researchers headed by Daniel Kahneman and Amos Tversky, who in their first research publication on the subject in 1974 discussed “Judgement under Uncertainty : Heuristics and Biases”. Further in 1979, Kahneman and Tversky brought to public attention their new “Prospect Theory” in the journal Econometrica, which further challenged the rationality argument and entirely changed the way in which investment decision making was looked upon. Prospect Theory discovered behaviour patterns that had never been recognized by the proponents of rational decision making. One of the most striking and useful findings in the Prospect Theory of the Israeli psychologist duo Kahneman and Tversky was the asymmetry between the way humans make decisions involving gains and decisions involving losses. Peter Bernstein, the founder editor of The Journal of Portfolio Management, in his incredible landmark book “Against the Gods – The Remarkable Story of Risk”, published in 1996 writes –
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