Biases In Investment Decision Research Articles

Behaviour Bias and Investment Decision in Nepalese Investors

The purpose of this study was to examine the impact of behavioral biases, such as overconfidence, disposition effect, herding, risk aversion, and financial literacy, on investment decision making. The sample was collected using a convenient method, and 338 respondents participated in the study. The study utilized descriptive statistics, ANOVA, independent sample t-tests, correlation, and linear regression analysis to analyze the data. The findings of the study suggest that overconfidence, disposition effect, and risk aversion have a significant positive impact on investment decision making, while herding does not have a significant effect. Furthermore, the results indicate that financial literacy moderate’s overconfidence, disposition effect, risk aversion, and herding negatively. This implies that higher financial literacy levels can help mitigate the impact of these biases on investment decisions. The study provides valuable insights for policymakers, stakeholders, and financial institutions to develop policies and strategies aimed at improving financial literacy. It can be useful for researchers and the general public as well, as it provides a deeper understanding of the behaviour bias and investment decision. Future research can broaden the scope of the study by including new independent variables, such as loss aversion and confirmation bias. Additionally, future research can explore the moderating effect of other factors, such as age and gender, on the relationship between behavioral biases and investment decision-making. Overall, the study highlights the importance of understanding and managing behavioral biases in investment decision making, and suggests that increasing financial literacy can help individuals make more informed investment decisions.

Exploring the missing link:Financial literacy and Cognitive biases in Investment Decisions

PurposeThe purpose of this study is to explore and understand, how strong financial literacy influences the cognitive biases of students in Germany while investing. Second, it also evaluates the most influential cognitive biases that students encounter when undertaking their investment decisions within this environment.Design/methodology/approachA quantitative approach is used to assess the relationship between financial literacy and students’ investment-related cognitive biases by using the frameworks proposed by Clercq (2019) and Pompian (2012).FindingsThe results advocate that the students’ financial literacy positively impacts their cognitive biases within the investment process. It additionally revealed the most significant biases regarding students’ investment decision-making and proposed the possible reasons behind their behavioral distortions.Research limitations/implicationsThe study provides a detailed review of the behavioral tendencies of the younger generation while investing and creates recommendations for prospective researchers.Originality/valueThis research lies at the junction of the behavioral finance field, suggesting that it assists in developing a theoretical framework of cognitive biases within students’ financial decisions. Furthermore, it serves as an addition to the financial management subject course that would provide valuable insights about, first and foremost, financial literacy and subsequently, the theory behind the investment process.

Investor Intuition Promotes Gender Equality in Access to Reward-Based Crowdfunding

Our study challenges the notion that intuition is used to explain away gender biases in access to finance, arguing instead that women's success in crowdfunding is rooted in the use of intuition. We measured investors' intuition using self-reports and fast investment decision-making related to crowdfunding campaigns in three randomized controlled experiments involving 2,911 subjects from Europe and the United States. Our Bayesian analysis provides evidence for a gender equality effect, suggesting that intuition cannot be cited as the reason for gender biases in investment decisions. Our research highlights the importance of reassessing the scientific reputation of intuition.

The Role of Behavioral Bias in Investment Outcomes

Investment decisions are made by individuals who are subject to behavioral biases. The biases could lead to a significant impact on the outcome of investments. This research paper aims to investigate the role of behavioral biases in investment decisions and outcome. The study draws on the theories of Rational Behavioral Finance, which recognizes that human behavior is influenced by both rational and irrational factors. The paper reviews several key behavioral biases that can affect investment decisions, including loss aversion, endowment bias, framing, overconfidence, and the illusion of control. The analysis of these biases is based on the context of different investment settings, including stock markets, mutual funds, and real estate. The paper introduces the significance of each bias, and how they can lead to suboptimal investment decisions. The latter part of the paper highlights how the biases can be addressed to improve the outcome of investments. Eventually, the research paper concludes that behavioral biases can significantly impact investment outcomes, but the application of Rational Behavioral Finance theories and strategies can mitigate the impact of these biases.

Heuristic Driven Biases in Investment Decision Making. A study using Structural Equation Modelling

Heuristic Driven Biases in Investment Decision Making. A study using Structural Equation Modelling

An analysis of behavioural biases in investment decision making

The psychological biases cause participants in the financial market to feel uneasy and unfavourable, which causes them to act impulsively. Against this backdrop, this study attempted to investigate the connection between behavioural bias and financial decision-making for stock market investors. This study is sample-based and the sample of the study has been stock market investors from Rajasthan. Our results confirm that behavioural bias plays a significant role in explaining investment decisions. Specifically, we find a positive relationship between overconfidence bias, optimism bias, disposition bias and home bias on investment decision-making and a significant negative relationship between herding bias on investment decision making. These results imply that investor psychology plays an important role in investment decision-making.

REVIEW PENELITIAN TENTANG PERILAKU INVESTOR DALAM PENGAMBILAN KEPUTUSAN INVESTASI

The purpose of this research is to systematically review the literature published ini past 42 years on behavioural biases in investment decision making. This paper highlights the major gaps in the existing studies on behavioural biases. It also aims raise specific questions for future research. The design of this research employ systematic literature review (SLR) method in the present study. The prominence research is assessed by studying the year of publication, journal of publication, country of study, types of statistical method, data collection technique and content analysis on literature on behavioural biases. The present study is based on 41 selected articles published in peer review journals between 1980 and 2022. The result show that much of the existing literature on behavioural biases indicates the limited research in developed economies in this area, the dominance of the primary data on data collection technique, the lack of empirical research on individuals who exhibit herd behaviour, the dominance theory used in the existing literature on behavioural biases in investment decision making is prospect theory.

Stock market entry timing and retail investors' disposition effect

This paper explores the long-lasting impact of investors' first impression of participation in the stock market and the disposition effect. Using a unique dataset of account-level transaction records from a large brokerage firm in China, we find strong evidence for the existence of a disposition effect of Chinese retail investors. Our empirical results suggest that investors exhibit a stronger disposition effect if they initially participate in the stock market in periods of lower market returns, lower investor sentiment, higher market volatility, or higher economic policy uncertainty (EPU). The evidence enhances our understanding of the role of investors' early experience in stock market decisions and the determinants of behavioural biases in investment decisions.

Mis-spending on information security measures: Theory and experimental evidence

Information resources are becoming increasingly important to individuals and organizations, and ensuring their security is a major concern. While research in information security has adopted primarily a quantitative method to determine how and how much to invest in security, most decision makers rely on non-quantitative methods for this purpose, thereby introducing a considerable amount of as yet unexplained subjective judgment to the problem. We use a behavioral decision making approach to investigate factors causing possible inefficiencies of security spending decisions. Decision makers in our experiment performed a series of economic games featuring the key characteristics of a typical security problem. We found several biases in investment decisions. For budgeting their investment between major classes of security measures, decision makers demonstrated a strong bias toward investing in preventive measures rather than in detection and response measures, even though the task was designed to yield the same return on investment for both classes of measures. We term this phenomenon the “Prevention Bias.” Decision makers also reacted to security threats when the risk was so small that no investment was economically justified. For higher levels of risk that warranted some security investment, decision makers showed a strong tendency to overinvest. Theoretical and practical implications of the findings are discussed.

AN EMPIRICAL EXAMINATION OF THE IMPACT OF LOCUS OF CONTROL ON INVESTOR BEHAVIORAL BAISES

The purpose of this paper is to examine the relationship between locus of control and behavioral biases (emotional and cognitive) in investor decision-making. Our research involved three stages. In the first stage, we undertook an exhaustive review of the existing literature to identify 20 commonly occurring biases in investor decision making. In the second stage, we individually studied each bias to identify and develop instruments for measuring these biases in investor decision making. During the pilot phase, based on exploratory factor analysis, some of these biases were clubbed together. Confirmatory factor analysis was conducted to develop a validated instrument for measuring these biases. In stage three, the finalized questionnaire along with Levenson’s locus of control was administered on a group of investors across the country and 618 responses were received. The results of this study have revealed underlying patterns within biases based on the Individual Control, Powerful others and Chance control. Investors with a high score on individual control showed significant differences and had a stronger inclination to being prone to Mental Accounting, Self Control, Framing, Illusion of Control, Regret Aversion, Recency, Availability, Anchoring and Adjustment, Optimism, Confirmation, Overconfidence and Endowment related biases. Further, Individuals having higher Chance control scores had a higher inclination to having cognitive dissonance within their investment decision making. Thus, results from this study helped understand the impact of locus of control on investor biases and preferences to facilitate the identification of an investor’s predisposition towards particular investing choices. This also serves as a mechanism to identify whether investors have an underlying inclination towards specific biases in investment decision making. This identification can facilitate remediation or corrective actions on part of the investor based on whether he has an internal or an external locus of control.

Behavioral Finance Biases in Investment Decision Making

Traditional finance suggests that investments made by rational behaviors investors examine risk and return before decision making to gain maximum profit later behavioral finance challenge traditional finance and introduce psychological factors affect decision making. The aim of this research paper is to explore how behavioral biases affect investment decision making under uncertainty. Dependent variable investment decision making is a composite activity, it never be made in a vacuity by depending on personal resources. Based on this study investment choices alternatives influence by human rational and irrational behavior, therefore, examine the impact of behavioral finance in the decision-making process. Behavioral finance phenomenon variables; heuristic, prospects, personality characteristics, feeling, moods and ecological factors explore under this research. Overconfidence, Representativeness, Anchoring, Regret Aversion, Hindsight, Herding Effect and Home Bias included in investors psychology behaviors. Survey questionnaire tool used to collect sample to conduct quantitative research. To test the hypothesis Regression analysis run by the SPS software. Findings revealed that there was an effect of behavioral biases on investment decisions. Empirical results concluded investment decision making influenced by heuristic behaviors more than prospects and personality characteristics. The originality of this study, it is very beneficial for investors and financial institutions to make decision by observation of psychological factors.

THE EFFECT OF PERSONALITY TRAITS ON COGNITIVE INVESTMENT BIASES

The purpose of this research is to assess the impact of personality factors on an investor’s financial decision-making particularly those related to cognitive biases. The understanding of behavioral biases among investors holds the key to identifying an investors’ propensity to making irrational and illogical decisions. Our research examined an investors’ behavioral orientation and their propensity towards cognitive biases in financial decision-making. Our research took place in two stages. In the first stage, we identified predominant cognitive biases among investors using an extensive review of existing research. We further prepared instruments to measure the cognitive biases for which we conducted exploratory factor analysis followed by confirmatory factor analysis. In the second stage, we used the 16pf instrument developed by Cattell to identify whether there exists a relationship between the personality of an investor and his propensity to have an inclination towards a particular cognitive behavioral bias and we identified some key relationships. Our research showed some interesting trends. We observed that most of the cognitive biases were related to particular personality traits namely, abstractedness, reasoning, emotional, stability, dominance and openness to change. Thus, for investment advisors and policy makers, if an investor demonstrates these personality traits, one can conclude that the investor may be more likely to have an inclination to have cognitive biases in investment decision making.

Behavior biases and investment decision: theoretical and research framework

PurposeThis paper developed a theoretical and research framework by identifying the behavioral biases in investment decision and by presenting a review of the available literature in the field of behavior finance-related biases. This paper aims to present a compressive review of the literature available in the public domain in past five decades on behavior finance and biases and its role in investment decision-making process. It also covers insights on the subject for developing a deeper understating of the behavior of investor and related biases.Design/methodology/approachThe work follows the comprehensive literature review approach to review the available literatures. The review carried out on different parameters such as year of publication, journal of publication, country, type of research, data type, statistical technique used and biases identified. This is a funnel approach to decrease the number of behavior biases up to six for further research.FindingsMost of the existing works have summarized behavior finance as an emerging area in finance. This indicates the limited valuable research in developing economy in this area. This literature review helps in identifying major research gap in this domain. It helps in identifying the behavior biases which work dominantly in investment decision-making. It would be interesting to explore the area of behavior biases and their impact on investment decision of individual investors in India.Originality/valueThis paper worked on literature prevailing on the subject and available on various online research data source and search engines. It covers a long time frame of almost five decades (1970-2015). This paper is an attempt to look at the impact of behavior finance and biases and its role in investment decision-making process of the investor behavior. This study builds up a strong theoretical framework for researchers and academicians by detailed demonstration of available literature on behavior biases.

The influence of risk perception, risk tolerance, overconfidence, and loss aversion towards investment decision making

This study aims to examine the effect of risk perception, risk tolerance, overconfidence, and loss aversion on investment decision making. The sample in this study were workers in Surabaya and Jombang, East Java. There were 400 respondents taken using a questionnaire through the survey method. This study used PLS-SEM (Partial Least Square-Structural Equation Model) as a data analysis technique. The results showed that risk perception has a significant and negative effect on investment decision making, risk tolerance and overconfidence have a significant and positive effect on investment decision making, while loss aversion has no effect on investment decision making. This research is expected to provide an overview of how to deal with risk in investment and how to avoid behavioral biases in investment decisions making.

Do investors exhibit behavioral biases in investment decision making? A systematic review

PurposeThe purpose of this paper is to study and describe several biases in investment decision-making through the review of research articles in the area of behavioral finance. It also includes some of the analytical and foundational work and how this has progressed over the years to make behavioral finance an established and specific area of study. The study includes behavioral patterns of individual investors, institutional investors and financial advisors.Design/methodology/approachThe research papers are analyzed on the basis of searching the keywords related to behavioral finance on various published journals, conference proceedings, working papers and some other published books. These papers are collected over a period of year’s right from the time when the most introductory paper was published (1979) that contributed this area a basic foundation till the most recent papers (2016). These articles are segregated into biases wise, year-wise, country-wise and author wise. All research tools that have been used by authors related to primary and secondary data have also been included into our table.FindingsA new era of understanding of human emotions, behavior and sentiments has been started which was earlier dominated by the study of financial markets. Moreover, this area is not only attracting the, attention of academicians but also of the various corporates, financial intermediaries and entrepreneurs thus adding to its importance. The study is more inclined toward the study of individual and institutional investors and financial advisors’ investors but the behavior of intermediaries through which some of them invest should be focused upon, narrowing down population into various variables, targeting the expanding economies to reap some unexplained theories. This study has identified 17 different types of biases and also summarized in the form of tables.Research limitations/implicationsThe study is based on some of the most recent findings to have a quick overview of the latest work carried out in this area. So far very few extensive review papers have been published to highlight the research work in the area of behavioral finance. This study will be helpful for new researches in this field and to identify the areas where possible work can be done.Practical implicationsPractical implication of the research is that companies, policymakers and issuers of securities can watch out of investors’ interest before issuing securities into the market.Social implicationsUnder the Social Implication, investors can recognize several behavioral biases, take sound investment decisions and can also minimize their risk.Originality/valueThe essence of this paper is the identification of 17 types of biases and the literature related to them. The study is based on both, the literature on investment decisions and the biases in investment decision-making. Such study is less prevalent in the developing country like India. This paper does not only focus on the basic principles of behavioral finance but also explain some emerging concepts and theories of behavioral finance. Thus, the paper generates interest in the readers to find the solutions to minimize the effect of biases in decision-making.

Role of Behavioral Biases in Investment Decisions : A Factor Analysis

Role of Behavioral Biases in Investment Decisions : A Factor Analysis

Behavioural biases in investment decision making: A research study on snakebite and house money effects on indian individuals

Investor's previous experience appears to be one of the major determining factors in investment decision making. It is observed that investors avoid those stocks which resulted in losses earlier. The painful experience known as snakebite effect makes the investor more risk averse when the repeat behaviour comes into the picture. A completely opposite behaviour is observed when the repeat behaviour is related to reinvestment of their earlier earned profit. It is like a gambler who takes greater risk while playing with the house's money, an investor also becomes willing to take greater risk if she/he plans to reinvest their earlier earned profit. Loss of the earlier earned profit is not considered as loss of their own money which insists them to undertake greater risks. A risk averse investor becomes increasingly risk seeker due to this house money effect. In this research study, it is strongly evidenced that both the snakebite and house money effects influence the investors in their decision making process which may lead to a serious error in judgement in many occasions.

Evidence on rationality and behavioural biases in investment decision making

Purpose The purpose of this paper is to investigate the relationship between rational decision-making and behavioural biases among individual investors in India, as well as to examine the influence of demographic variables on rational decision-making process and how those differences manifest themselves in the form of behavioural biases. Design/methodology/approach Using a structured questionnaire, a total of 386 valid responses have been collected from May to October 2015. Statistical techniques like t-test, analysis of variance (ANOVA) and Fisher’s least significant difference (LSD) test have been used in this study. Structural equation modelling (SEM) has been used to analyse the relationship between rational decision-making and behavioural biases. Findings The findings show that the structural path model closely fits the sample data, indicating investors follow a rational decision-making process while investing. However, behavioural biases also arise in different stages of the decision-making process. It further explores that gender and income have a significant difference with respect to rational decision-making process. Male investors are more prone to overconfidence and herding bias in India. Research limitations/implications The findings of the study have significant implication for the individual investors. It is recommended that if individuals are aware about the biases, they may become alert before taking irrational investment decisions. Originality/value To best of the authors’ knowledge, the present study is a first of its kind to investigate the relationship between rational decision-making and behavioural biases among individual investors in India.

Impact of Behavioral Biases on Investment Decision; Moderating Role of Financial Literacy

This study focus to check the influence of behavioral biases in investment decision making with moderating role of financial literacy in Pakistan. Theories in traditional finance consider that the individual investor is rational because he makes all decision on the bases of all available information to maximize his wealth. On the other hand behavioral finance is totally opposed this theory and consider that the individual have some psychological impact toward his investment.A simple survey questionnaire is used to collect data from 158 investors from investors trading in Pakistan Stock Market. The results show that disposition effect, overconfidence and herding have significant positive impact on investment decision. Financial literacy has negative moderating role in herding bias and positive moderating role of overconfidence bias in investment decision. Results conclude that active investors show more overconfidence bias while passive investors show more herding bias. This study will help financial advisors to better advice their clients. The one more way to overcome these biases may be the training of investor and education. Research culture must be promoted and investor must have ability of technical analysis.

Behavioural Biases in Investment Decisions:An Exploration of the Role of Gender

Classical finance theories are based on the assumption of rational decision making. However, it has been concluded by various researchers that in practical situations, humans are not fully rational. They are influenced by various behavioural factors and errors in judgment while making decisions. These behavioural factors, also termed as cognitive illusions, cannot be adequately explained by traditional finance theories. This research work sought to assess the impact of gender on certain identified behavioural factors (or biases) such as overconfidence bias, reference point bias, self-attribution bias, framing effect bias, overreaction bias, and regret avoidance bias in investment decision making of individual investors. A sample survey of 521 individual investors was conducted through a structured questionnaire in the National Capital Region of India. The results of detailed investigation of collected data revealed clearly that individuals' investment decisions are not fully rational. Investors were found to be prone towards behavioural biases tested in this study. However, mix evidence was found in the study about variation in the propensity to exhibit these behavioural biases between male and female investors. Gender effect was found to be statistically significant in case of overconfidence bias, self-attribution bias, and regret avoidance bias.