The Impact of Herding, Loss Aversion, and Cognitive Dissonance on Individual Investor’s Investment Decision Making: Moderating Role of Financial Literacy

Abstract

The objective of this study is to examine the impact of loss aversion, Herding behavioral and Cognitive dissonance on an individual investor’s investment decisions making in Pakistan. The study used the moderating role of financial literacy with behavioral and cognitive biases to influence on investment decisions. The study is quantitative in nature and used major behavioral and psychological biases that impact investors’ investment decisions making in Pakistan. The data is collected by using questionnaires. The population of the study consists of investors in the twin cities of Islamabad and Rawalpindi. The sample size included study was about 251 respondents. The study used SPSS and Smart PLS software to analyze the data. The study used a convenient sampling technique. The major estimation tools used in the study are the alpha correlation matrix, descriptive summary, regression, etc. The findings of the study reveal that there is a significant impact of loss aversion, and herding on investment no significant relationship exists between cognitive dissonance and investment decision-making. The study is limited to developing market individual investors of Islamabad Pakistan. This study is implacable for students, researchers, and investors to take certain decisions and control biases. In the future, the study can be extended to some institutional investors’ biases, and other behavioral and cognitive biases can be added to the study. The study can be extended by using the mediating role of human moderators as well.