Survey evidence on core factors of behavioral biases

Abstract

In the past decades, a multitude of behavioral biases with regard to financial decision-making have been found. We show that nine common judgment and decision biases can be reduced to three main latent factors that are related to belief-updating, self-judgment, and valuation. The three-factor solution can be replicated in both Taiwanese and German samples. We find some tentative evidence that cognitive reflection decreases the propensity for belief-updating biases, whereas affect, especially negative affect, increases self-judgment biases.