Heuristic Bias Research Articles

Anchoring and Adjustment Heuristic in behavioral finance

As a result of changing and evolving times, there is a growing realization that dogmatic economic theories cannot meet the practical needs of market analysis. Under such circumstances, behavioral economics came into being. This paper briefly introduces the origins of behavioral finance, highlighting the role of anchoring and adjustment effects, two psychological heuristic bias in the financial market, and analyzing the pros and cons and countermeasures. From the Nobel Prize of Richard Thaler in 2017, people began to realize the importance of behavioral finance and separating it with normal economic. To understand the way to introduce social psychology phenomenon to economic, we start from explaining anchoring bias on customers and then point out how people use adjustment behavior to correct it and the importance of this behavior. The explain of concept is followed with four familiar and detailed examples of the anchoring and adjustment heuristic in behavioral finance. The examples are all about how to use anchoring and adjustment strategy. First, we will talk about product display and marketing using this strategy. The brands set up an expensive and luxury product to give customers a high prediction of the price of the product they will actually buy. When they see the actual price of the product they are going to buy, it would be much lower that there expect. As a result, they would regard themselves as picking up a bargain and purchase it without hesitation. Similarly, in a court of law, judges are influenced by juries, proving that the anchoring effect does not change depending on the amount of knowledge base (non-experts can influence experts). Also, the anchoring effect can be applied to games. People can judge the psychological price floor of their opponents by first offer thus gaining higher returns. The emergence and popularity of the interdisciplinary discipline of behavioral economics also reflects the need for interdisciplinary connections and innovation.

Does Heuristic Bias Matter for Long And Short-Term Investment Decision-Making During The COVID-19 Pandemic?

Introduction/Main Objectives: This study examines the effect of heuristic behavior on investment decision-making in the long- and short-term during the COVID-19 pandemic in the Indonesian capital market. Background Problems: Traditional finance cannot fully explain how investors behave in the capital market. Investors will tend to use heuristics when making investment decisions because humans have cognitive limitations, as explained in the bounded rationality theory. Especially during the COVID-19 pandemic, investors have shown their irrationality due to the high uncertainty and panic caused by the COVID-19 pandemic. This phenomenon can only be explained by behavioral finance. Novelty: This study examines the effect of bias on the invest­ment decision-making of investors who make long-term and short-term investments. Previous studies only tested the impact of bias directly, without differentiating the length of time of the investment. Research Methods: This study used partial least squares structural equation modelling (PLS-SEM) with WarpPLS tool. Testing the moderating effect was undertaken using multi-group analysis (MGA). Finding/ Results: The results of this study indicate that anchoring and availability bias have a positive effect on investment decision-making, while representativeness bias has no significant impact. Investment time moderates the effect of representativeness bias on irrational investment decision-making, while anchoring and availability bias are not supported. Conclusion: Anchoring and availability heuristics will increase irrational investment decisions, while the effect of representativeness heuristics on irrational investment decisions will decrease when investors make long-term investments.

Risk Tolerance: Heuristic Bias Towards Investment Decision Making

Objective: This study aims to examine how risk tolerance influences the role of overconfidence bias and availability bias in investment decision-making. Because of the complexities of the investment decision-making process, this study attempts to investigate psychological variables in the investment decision-making process. Design/Methods/Approach: This study used the Structural Equation Modeling Partial Least Squares (SEM-PLS) analytic approach using the SmartPLS 3 program and survey data provided online to stock investors, with a total of 303 samples obtained. The study applied CMB preventive techniques to decrease common method bias (CMB). Findings: The results indicate a positive and significant mediating role of risk tolerance on the effect of overconfidence bias and availability bias toward investment decision-making. Originality/Value: This research seeks to explore the process of making investment decisions by taking into account the psychological aspects of investors by using a more comprehensive Bounded rationality theory point of view. This study tested the mediation mechanism of risk tolerance in bridging the influence of heuristic bias on investment decision-making, which has not been explored much by previous studies. Practical/Policy implication: The findings can guide investors to consider how they make biased investment decisions and help investment managers assess the appropriate level of investment risk.

The Effect of Heuristics on Indian Stock Market Investors: Investor Sentiment as a Mediator

This study analyses heuristic factors affecting investor sentiment and investment decision-making in the Indian stock market. A quantitative approach is formulated with the questionnaire design for the collection of primary data regarding investor sentiment, representativeness heuristic bias, overconfidence and availability bias. The data are collected from the structured questionnaires from individual investors. The collected data were analysed using partial least square structural equation modelling to examine the relationship between the constructs: investor sentiment, representativeness heuristic bias, overconfidence and availability bias. This paper provides empirical insights into the association of heuristic factors that positively influence investor sentiment and investment decision-making. It encourages investors to make reasonable choices and to control and understand their risk. The study sheds light on the impact of investor sentiment on investment decision-making and its antecedent. It shows that investors depend on sentiment when making investment choices. Policymakers should provide consumers with knowledge and appreciation of the correct stock choice; various campaigns considering the different groups of investors will benefit decision-makers and institutional financial practitioners. This paper allows investors to pick the proper investment assistance to avoid making wrong decisions that arise as an outcome of the attitude of investors.

Cognitive biases, downside risk shocks, and stock expected returns

This paper finds that the pricing effect of past stock downside risks in stock markets is greatly influenced by two cognitive biases: the representativeness heuristic bias and the conservatism bias. The two cognitive biases can cause investors to misreact to past downside risks of stocks, resulting in abnormal returns. Using the pseudo-Bayesian model, we theoretically describe how investors' incorrect belief updates, influenced by two cognitive biases regarding downside risks of a stock, affect future stock returns under four scenarios. Our empirical analysis confirms that biased beliefs lead to a positive correlation between short-term downside risk shocks and future stock returns, while a negative correlation exists between long-term downside risk shocks and future stock returns. This phenomenon is prevalent in the Chinese A-share market, even after controlling for several commonly used firm characteristics. Similar results are also observed in the US stock market. Furthermore, more active retail investors and low investor sentiments can strengthen the anomalous relation.

Does the Investor’s Trading Experience Reduce Susceptibility to Heuristic-Driven Biases? The Moderating Role of Personality Traits

The aim of this study was to evaluate whether trading experience reduces exposure to heuristic-driven biases, namely availability bias, anchoring and adjustments bias, representativeness bias, and confirmation biases of individual investors operating in the Indian stock market, through the moderating role of the Big Five personality traits. To achieve these research objectives, primary data were collected through a structured questionnaire. The sample consisted of 408 individual investors trading on the Indian stock market, who were selected on a convenient basis. Confirmatory factor analysis and Cronbach’s alpha were used to measure the validity and reliability of the data. Further analysis was conducted using Pearson’s correlation and multiple regression. The results of this study prove that increased trading experience does not always reduce the susceptibility to heuristic biases. Increased trading experience reduces the susceptibility to availability, and anchoring and adjustment heuristics of individual investors operating on the Indian stock market. The present study has some relevant implications for investors, portfolio managers, financial advisors, and other interested persons in the stock market.

Development and validation of an individual entrepreneurial potential new measurement scale

PurposeAs good as existing measurements of entrepreneurial potential (EP) may appear in the literature, they are fragmented, suffer from the lack of theory integration and clarity, are inadequately specified and assessed and the dimensions are unordered by importance. These limitations of EP metrics have hindered entrepreneurial practice and theory advancement. There is a risk of atomistic evolution of the topic among “siloed” scholars and room for repetitions without real progress. The purpose of this paper was to take stock of existing measurements from which the authors developed a new instrument that is brief and inclusive.Design/methodology/approachThe authors followed several steps to develop and validate the new instrument, including construct domain name specification, literature review, structured interviews with entrepreneurs, face validation by experts, semantic validation and statistical validation after two waves of data collected on employee and entrepreneur samples.FindingsA clear operational definition of EP is proposed and serves as a starting point towards a unified EP theory. The new EP instrument is made up of 34 items classified into seven dimensions, which in order of importance are proactive innovativeness, management skill, calculated risk-taking, social skill, financial literacy, entrepreneurial competencies prone to cognitive and heuristic biases and bricolage. The authors provide evidence for reliability and validity of the new instrument.Research limitations/implicationsAlthough a model is not the model, the authors discuss several ways in which the new measurement model can be used by different stakeholders to promote entrepreneurship.Originality/valueThe authors discuss the domain representativeness of the new scale and argue that the literature can meaningfully benefit from a non-fuzzy approach to what makes the EP of an individual. By developing a new EP instrument, the authors set an important pre-condition for advancing entrepreneurial theory and practice.

Study of heuristic bias and herding financial behavior model on sharia-based investment decisions for millennial generation

Business activities that run well and safely will increase the rate of economic growth. Relatively affordable investment capital as launched by Indonesia Stock Exchange since 2015 by holding the "Yuk Nabung Saham" campaign aimed at inviting investors to invest by buying stocks or other instruments on a regular basis at Capital Market. Throughout 2021, the growth in the number of investors has increased very significantly, especially for novice investors from millennial generation to invest in several sharia instruments. Quantitative research with a causal design was applied using a purposive sampling technique by collecting a questionnaire of 180 respondents. Meanwhile, the data analysis method uses the PLS software application. The results showed that financial variable representativeness behavior had a significant negative effect on investment decisions of millennial generation in West Java, while financial variables of overconfidence and herding behavior had a significant positive effect on investment decisions of millennial generation in the West Java region.

Heuristic Biases as Mental Shortcuts to Investment Decision-Making: A Mediation Analysis of Risk Perception

In the last two decades, research on behavioural biases has grown dramatically, fuelled by rising academic interest and zeal for publication. The present study explores the mediating role of risk perception on the relationship between heuristic biases and individual equity investors’ decision-making. The study uses Partial Least Square Structural Equation Modelling (PLS–SEM) to examine the survey data from 432 individual equity investors trading at the National Stock Exchange (NSE) in India. Risk perception is found to play a partial mediating role in the relationship amid overconfidence bias and investment decision-making, availability bias and investment decision-making, gamblers’ fallacy bias and investment decision-making and anchoring bias and investment decision-making, whereas it is found to play the full mediating role in the relationship between representativeness bias and investment decision-making. The result of the present study provides valuable insights into the different behavioural biases of capital market participants and other stakeholders such as equity investors, financial advisors, and policymakers. The present study solely relied on the heuristic biases of individual equity investors. However, in the real world, many other factors may impact the investment decision of individual equity investors. This has been considered a limitation of the study. The present study solely relied on the heuristic biases of individual equity investors. However, in the real world, many other factors may impact the investment decision of individual equity investors. This has been considered a limitation of the study.

ARE THE EFFECTS OF THE MOON ON MARKET MOVEMENTS ANALOGOUS? – A STUDY ON NSE INDIA

The paper belongs to the area of Financial Astrology, an unchartered field of analysis of securities. Investors fraternity continues to find investing in the stock market an attractive and challenging venture. During the recent decade, the growth and development of the Indian stock market have been tremendous. While managing their investments in the stock market, investors most often utilize fundamental analysis and/or technical analysis. Although neither of these strategies is successful in determining when to enter into a transaction and when to exit it to maximize profits or reduce losses. The answer to this issue is financial astrology, which uses planetary positions to predict stock/index prices. In the study, the link between the NSE NIFTY and the Moons passage through Indian astrologys zodiacal signs is explored. An analysis of historical data from March 2010 to April 2020 is used in this study. In this research paper, we examine whether the moons conjunction with 12 distinct zodiac signs has significant bullish and bearish effects. Based on the studys findings, investors may be able to predict when to buy or sell stocks based on lunatic trends. Trends are determined by conjunctions that have an average positive return and those that have an average negative return. Further research is needed in term of investigating the relationship between psychology factors (heuristic bias, information ignorance, and other factors) and investment decision making by putting lunatic trends as intervening factor. The effect of moon on certain anomalies has to examine specifically. Additionally, the study adds to the body of literature on the impact of lunar factors on stock prices. KEY WORDS: Historical return, Moon, NSE NIFTY, Financial Astrology. Chi-Square test

Assessing Heuristic Bias During Care for Patients Hospitalized for Heart Failure: Get With The Guidelines-Heart Failure.

Heuristic biases are increasingly recognized, and potentially modifiable, contributors to patient care and outcomes. Left digit bias is a cognitive bias where continuous variables are categorized by their left-most digit. The impact of this heuristic bias applied to patient age on quality of care in heart failure has not been explored. We examined participants admitted from 2005 to 2021 in the Get With The Guidelines-Heart Failure registry. To create 2 naturally randomized groups, isolating the effect of left digit bias, we dichotomized patients into those discharged within 60 days prior to their 80th birthday (N=4238) and those discharged within 60 days after their 80th birthday (N=4329). We performed multivariable logistic regression to assess the association between discharge date relative to 80th birthday and several in-hospital quality metrics and in-hospital outcomes. Among Medicare participants (N=2759), we performed adjusted Cox regression to analyze the relationship between discharge date and risk of 1-year mortality or readmission. Among 8567 patients, 50.4% were female, 73% were non-Hispanic White, and 42.9% had an ejection fraction ≤40%. Discharge date relative to 80th birthday was not associated with numerous in-hospital quality metrics or in-hospital outcomes on unadjusted or adjusted logistic regression. Among Medicare beneficiaries, there was no association between discharge date and risk of mortality or readmission at 1-year postdischarge (hazard ratio, 1.03 [95% CI, 0.95-1.12]; P=0.52). In a large registry of patients hospitalized for heart failure, we did not detect a left digit bias' with respect to age at discharge, which resulted in differential quality of care or outcomes.

An empirical assessment of financial literacy and behavioral biases on investment decision: Fresh evidence from small investor perception.

To have enough financial literacy, an investor must be able to make intelligent investment choices, and on the other hand, the heuristic bias, the framing effect, cognitive illusions, and herd mentality are all variables that contribute to the formation of behavioral biases, also known as illogical conduct, in the decision-making process. The current research looks specifically at behavioral biases and financial literacy influence investment choices, particularly on stock market investment. For the research, a representative sample of 450 individual investors was evaluated. A structured questionnaire was designed using the Likert’s scale method to elicit the research variables, and the data acquired were analyzed using the SEM method. According to the findings, there was a statistically significant link between heuristic bias and the development of behavioral bias in decision-making. Nevertheless, cognitive illusions, the herd mentality, and the framing effect all have a deleterious impact on behavioral biases. In addition, investors often adhere to heuristic biases rather than other irrational strategies when making investment judgments. Therefore, individual investors’ financial literacy level greatly influences the choices made about investments in the stock market.

Students’ game addiction caused by multi-constructs and multi-dimensions: Self-controls, cognitive biases and opportunistic behaviours

PurposeThis study investigates some extant research concentrating on student self-regulation to play online games addictively. Then, it proposes a new design to explain game addiction caused by students’ cognitive biases according to three contested approaches: self-control or self-regulation, cognitive distortion, and opportunistic behaviour. Moreover, it separates each contested approach in detail.Research methodologyThis research generalises research subjects with specific qualities and characteristics according to the researchers’ provisions. It selects the population with specific attributes: self-control, cognitive bias, opportunistic behaviour, habits and addiction to online games. Then, this study distributes bilingual questionnaires to the respondents throughout Indonesia. Finally, it tests these research hypotheses, splits them according to each model, and avoids perfect-collinearity among the constructs.OriginalityThis research creates a new design incorporating three contested models of students’ addiction to games. The authors argue that online game addiction is due to students’ weak self-control, cognitive distortion, and opportunistic behaviours. The first perspective suggests that students play games addictively because of their low self-control in managing their tasks and enjoying leisure time. Secondly, this research deals with students playing the game due to their cognitive distortions: embodiment, stereotype, and heuristic biases. Finally, the third perspective explains students’ addiction to games because of their probable attitudes and behaviours: indeterminism, escapism, and adverse selection.FindingsThis research finds that each contested model could explain students’ tendencies to be addicted to playing online games. The authors conclude that multi-constructs and multi-dimensions explain students’ tendency to play games addictively in all three contested models. Moreover, this research infers that students’ habits and addictive behaviours are due to the number of games available on social media and the internet. This availability would likely damage academic habits, behaviours, culture and environment. Meanwhile, educational systems cannot stop the emergence and alterations of some new games. Finally, this study innovates the multi-paradigm for teachers’ counselling guidance.ImplicationsThis study’s findings imply a need for students’ behavioural therapy to be conducted by academic counsellors who are careful of the causal factors of multi-constructs and multi-dimensions. Then, it argues that the different causal factors impact the need for different cognitive therapies. Moreover, it explains that equal treatment for these students addicted to games would make them more stressed. Then, academic counsellors developing healing and wellness programmes should mitigate these students with a specific trait from the subdimensions of each construct.

A-7 Extending the Quantified Process Approach - Application of Nonlinear Models Toward the Understanding of Neurocognitive Decline Across the Lifespan

Abstract Objective: In this presentation, I will extend the Reliability Theory of Cognitive Decline and examine the emergence of infrequent errors on neurocognitive tests following cognitive decline or brain insult. Data Selection: Unpublished, meta norms (Figure 1), data published by Poreh (2020) (Figure 2), and cognitive/genetic data collected by the National Alzheimer’s Coordinating Center (NACC) will be used to illustrate the validity and utility of the model. Data Synthesis: Nonlinear models will be presented to show how performance on various neuropsychological tests declines across the life span and how the threshold and rate of decline are impacted by education and genetics (Figures 3a and 3b). Next, a new theoretical model will be used to explain how task-specific neurocognitive systems (neural networks) fail. The “time to failure” curve-fitting hazard model (Figure 4) will be used to illustrate how this process occurs and how this method can be applied to the development of age-based norms for such errors on neuropsychological tests. Conclusions: This cohesive empirical model extends on the Quantified Process Approach using cross-sectional and longitudinal neuropsychological data. This model allows clinicians to understand the effect of education on cognition decline (also known as “brain reserve capacity”), genetic predisposition, and heuristic biases regarding cognitive aging.

Behavioral Factors Analysis in Investment Decision-Making

This study focuses in investigating behavioral factors that affect individual investment decision who actively trading in Indonesia stocks exchange. The paper emphasizes in less developed financial markets (Indonesia) to occupy literature gap. Seven (7) human financial behavior which categorized as heuristic biases are measured by numerous questions under online questionnaire, to examine the relationship between trait anxiety, overconfidence, trait anger, self-monitoring, herding factor, anchoring/adjustment, and availability bias with investment decision. To test the hypothesis, sample of 168 Indonesian Stocks Exchange investors are analyzed using statistical methods of regression and correlation analysis. Relationship of financial behavior biases and investment decision is analyzed on the research. The result indicates that overconfidence and self-monitoring are related with investment decision while trait anger, trait anxiety, herding effect and availability bias, and anchoring and adjustment are not related.

Optimal Path and Timetable Planning Method for Multi-Robot Optimal Trajectory

In an environment with limited space and dense goal configuration, the path of robot team is forced to coincide without much adjustment space, which is a challenge for multi-robot collaborative path planning. In this work, a novel Optimal Path and Timetable Planning (OPTP) method is proposed. The OPTP firstly generates the near-shortest paths for each robot by an RRT*-based planner. Then the timetables for each robot in the path-time space are created by the improved Particle Swarm Optimization (PSO) method. A heuristic bias is added to the PSO optimizer to efficiently mediate the conflict near the goal configuration. The OPTP achieves the near-shortest moving distance of the multi-robot team, as well as the near-optimal navigation makespan in face of complex obstacles, narrow channels, and dense goal configurations. The compared simulations and real-world experiments verify the effectiveness of the OPTP method.

What matters in the annuitization decision?

We perform a simultaneous test for several rational and behavioral factors known to affect the uptake of life annuities in a sample of Americans. We also investigate whether analysts’ short-term stock market expectations affect the decision to annuitize retirement wealth. We find that facing such expectations without trusting them lowers the purchase of annuities. Moreover, we find that individuals who trusted financial analysts’ expectations were less likely to purchase annuities. We attribute these findings to the availability heuristic and present bias, respectively. Finally, we discuss the mediating role of annuity antipathy. Our results provide guidance for policy-makers and annuity providers and offer venues for future research.

Impact of Heuristic-Driven Biases on Investment Decision-Making of Individual Investors: The Mediating Role of Risk Perception

Investors do not behave rationally as traditional finance suggests, whereas they use mental shortcuts. This research aims to knowhow heuristic biases impact the individual investor’s investment decision who invested in the financial market. Also, attempt to check wheatear risk perception mediates the relationship. Cross-sectional research was done by adopting a structured and close-ended questionnaire survey method by obtaining data from 484 individual investors investing in the financial market. The study provides empirical insight into the relationship between second-order heuristic biases of the individual investor and irrational investment decision-making and checks the mediating role of risk perception. The results show the significant positive impact of heuristic bias on the irrational investment decision-making of individual investors. Risk perception partially mediates the relationship. The findings of this study encourage individual investors to understand and identify their biases or sentiments. This study will help create investors’ awareness to decide on their financial capacity after assessing all available alternatives.

Heuristics, investments and planning among young investors of India

A heuristic is a Greek word meaning ‘to discover’. The paper aims to assess the influence of heuristics on the investors’ investment decision making by analysing the effect of four heuristic biases, i.e., anchoring, availability, representativeness and overconfidence bias in the context of Mumbai Stock Markets. Active young investors in the Mumbai stock markets constitute population of this study. Considering the nature of population, convenient sampling has been used. The study applied quantitative and qualitative approaches to study the influence of four heuristics (anchoring, availability, representativeness and overconfidence) on investors' stock buying decisions. The data has been collected through a self- constructed questionnaire from investors in Mumbai stock exchanges. An items' descriptive analysis is conducted as a primary analysis technique to explain the most frequent responses of the investors to different aspects of the heuristics; and in order to support the findings from the descriptive analysis, correlation analyses have been used as supplementary approach.

Yland et al. Respond to "Heuristics and Wish Bias".

Yland et al. Respond to "Heuristics and Wish Bias".