Homo Economicus Research Articles

The Influence of Representativeness Bias and Hearding Effect on Investment Decisions in the Capital Market

This research aims to explore the influence of representativeness bias and herding effect behavior on rational investment decisions in the capital market. Quantitative methods were used involving 100 investors who were members of the Beginner Stock Investor (ISP) community in Jakarta. The results of the analysis show that representativeness bias and herding effect behavior have a significant influence on rational investment decisions. These findings highlight the importance of awareness of the psychological factors that influence investor behavior in making investment decisions, as well as the need for a more independent and focused approach to fundamental analysis to ensure more appropriate and optimal investment decisions. The practical implication of this research is that a better understanding of investor behavior and its impact on markets can help investors to overcome these biases and improve the quality of their investment decisions.

A Comprehensive Analysis of Behavioral Finance and its Impact on Investment Decisions

This paper thoroughly examines behavioral finance, challenging traditional financial theories by questioning investor rationality and market efficiency. Focusing on five key phenomena—loss aversion, short-term momentum, long-term reversal, framing effect, and endowment effect—the analysis relies on real-world observations to reveal how psychological biases significantly impact investor decisions and financial markets. Loss aversion, especially evident during financial crises, highlights humans' tendency to avoid potential losses rather than pursuing equivalent gains. The study explores short-term momentum and long-term reversal, challenging market efficiency theories by illustrating how past performance influences future returns. Emphasizing cognitive biases like framing and endowment effects, the paper underscores their role in diverse investment decisions and irrational asset overvaluation based on a sense of ownership. It advocates for incorporating these biases in financial models, regulations, and investment strategies, emphasizing their importance for stakeholders to navigate the financial landscape, minimize instability, and capitalize on opportunities. The research establishes a foundation for a holistic finance approach, respecting and leveraging human behavior for market stability and benefit.

Verifiable Crowd Computing: Coping with bounded rationality

In this paper we use the repeated-games framework to design and analyze a master-worker (MW) mechanism, where a master repeatedly outsources computational tasks to workers in exchange for payment. Previous work on MW models assumes that all workers are perfectly rational and aim to maximize their expected utility. Perfect rationality is a strong behavioral assumption because it requires that all workers follow the prescribed equilibrium. Such a model may be unrealistic in a practical setting, where some agents are not perfectly rational and may deviate from the equilibrium for short-term gains. Since the correctness of these MW protocols relies on workers following the equilibrium strategies, they are not robust against such deviations.We augment the game-theoretical MW model with the presence of such bounded-rational players or deviators. In particular, we show how to design a repeated-games based MW Verifiable Crowd Computing mechanism that incentivizes the rational workers (or followers) to effectively punish such deviators through the use of terminal payments. We show that the master can use terminal payments to obtain correct answers to computational problems even in this more general model. We supplement our theoretical results with simulations that show that our mechanism outperforms related approaches.

The problem with Pod Man

Pod Man is the rational, individual and hyper-masculine transport consumer entrenched in industry narratives focused on automated vehicle technologies and infrastructures. This article interrogates how these narratives are constituted, the futures they imagine, predict and promote, and how people and households are presented within these futures. The discussions in this article are based on a content analysis of sixty industry reports. While there is an emerging body of research engaging with the gendered and racialised dimensions of future automated mobilities, previous studies have for the most part focused on conceptual and promotional visualisations of automated vehicles. Building on this existing work, I argue that equal attention needs to be paid to the ideologies and agendas embedded in industry reports. Taken together, the visual representations and industry reports contribute to large scale anticipatory narratives about possible futures. To better understand and critique the values and logics of these narratives, I discuss how the Pod Man persona underlies visions of automated vehicles and its potential consequences for shaping potential future trajectories.

Innovation-Driven Stock ValuationThe Influence Mechanism of R&D Investment in China Stock Market

Scientific and technological innovation plays a vital role in the development of enterprises and national economic growth. Stock valuation reflects the capital market's recognition of enterprises, and whether technological innovation can promote the improvement of enterprise stock valuation needs to be empirically tested. Therefore, this study selects listed companies in Shenzhen and Shanghai Stock Exchange from 2017 to 2022 as samples to explore the impact of technological innovation on stock valuation through empirical tests. The results show that technological innovation has a positive impact on stock valuation. The research in this paper not only enriches the relevant literature of technological innovation and enterprise valuation, but also has important reference value for enterprise management and guiding investors to rational investment.

Research on the Impact of ESG Disclosure on Green Bond Issuance in New Energy from the Perspective of Carbon peak

With the goal of carbon peaking, low-carbon green development has become the main theme of economic development. In this context, while pursuing economic benefits, it is also necessary to take into account environmental benefits. Industrial development policies and matching funding strategies related to low-carbon green are called for, and sustainable economic strategies will make the industry move forward steadily. On the basis of foreign scholars' research on green bonds and industrial ESG, this project is based on the new energy industry, organizing and researching the information disclosed by its ESG, exploring in depth the influence of this information on the issuance of green bonds by the new energy industry, and exploring whether there is any positivity in this influence. The ESG information disclosed by the new energy industry can, on the one hand, help investors better understand ESG governance and the green bond market in the new energy industry, and guide them to make rational investments; on the other hand, it can help the government better formulate policies to improve the perfection of the green bond-related standards, including the evaluation system and certification system, as well as the quality of the industry's information disclosure.

Herding during different types of crises: The COVID-19 health crisis and Russia–Ukraine political crisis

We analysed herding behaviour in the recent pandemic and conflict. We employed the cross-sectional dispersion of daily stock returns to estimate herding's intensity in the Saudi stock market. We conducted all analyses for the entire sample and four sub-samples. Additionally, we investigate the existence of the asymmetry in the investors' responses; whether there are differences between up and down markets and between high-volatility and low-volatility days. We found that herding did not occur in the pre-COVID-19, occurred in the during-COVID-19, disappeared in the post-COVID-19 and did not occur during the Russia–Ukraine conflict. Robustness checks confirm our finding that herding manifested in the during-COVID-19 period. Additionally, no difference exists between bearish and bullish or high-and low-volatility days, pushing aside the asymmetry in the investors' responses. This study may raise investors' awareness of their cognitive bias's influence on their decisions, improving market efficiency by increasing the rationality of investors' decisions.

Decoding trust: a reinforcement learning perspective

Abstract Behavioral experiments on the trust game have shown that trust and trustworthiness are commonly seen among human beings, contradicting the prediction by assuming Homo economicus in orthodox Economics. This means some mechanism must be at work that favors their emergence. Most previous explanations, however, need to resort to some exogenous factors based upon imitative learning, a simple version of social learning. Here, we turn to the paradigm of reinforcement learning, where individuals revise their strategies by evaluating the long-term return through accumulated experience. Specifically, we investigate the trust game with the Q-learning algorithm, where each participant is associated with two evolving Q-tables that guide one’s decision-making as trustor and trustee, respectively. In the pairwise scenario, we reveal that high levels of trust and trustworthiness emerge when individuals appreciate both their historical experience and returns in the future. Mechanistically, the evolution of the Q-tables shows a crossover that resembles human psychological changes. We also provide the phase diagram for the game parameters, where the boundary analysis is conducted. These findings are robust when the scenario is extended to a latticed population. Our results thus provide a natural explanation for the emergence of trust and trustworthiness, and indicate that the long-ignored endogenous factors alone are sufficient to drive. More importantly, the proposed paradigm shows the potential to decipher many puzzles in human behaviors.

Behavioral Finance: The Impact of Investor Expectation on Financial Decision-Making

Behavioral finance challenges traditional financial theories by questioning the assumption of investor rationality, highlighting the influence of cognitive biases, emotions, and psychological factors on decision-making. This deviation from conventional models like the Efficient Market Hypothesis recognizes the complexity of human decision-making in financial contexts. The field focuses on key phenomena: loss aversion, market anomalies, the framing effect, and the endowment effect. Loss aversion reveals a stronger reaction to losses than equivalent gains, influencing overly cautious decisions. Market anomalies, such as momentum and trend reversals, challenge efficient market expectations. The framing effect shows how decision-making is swayed by information presentation. The endowment effect impacts perceived asset value, affecting financial decisions. These biases significantly impact investor behavior, potentially leading to suboptimal portfolio choices. Recognizing these biases is crucial for making informed financial decisions. Behavioral finance research has profound implications, emphasizing the integration of behavioral insights with traditional models. Future studies should explore cumulative behavioral effects, conduct cross-cultural analyses, and investigate diverse market conditions for more effective investment strategies and regulations. Understanding global financial behavior through behavioral finance is essential for comprehensive insights into market dynamics and decision-making processes.

The Influence of Anchoring and Overconfidence on Investment Decision-Making in the Saudi Stock Market: A Moderated Mediation Model

Abstract This research sheds light on the relationships between heuristic biases and investment decisions as demonstrated by Saudi investors by establishing a mediating role for investor overconfidence in the relationship between anchoring heuristics and investment decision-making. The first to present evidence for this role, the study takes into account specific types of investment decisions – i.e. decisions to buy, sell, and engage in frequent trading. Based on a sample of 598 responses, empirical evidence is presented to show that anchoring directly increases the extent to which investment decisions are irrational and also does so indirectly through its impact on overconfidence. Given that this is the case, investors would be well-advised to critically assess the influence on their investment decision-making of overconfidence, which may, in turn, be rooted in deep-seated biases such as anchoring. Further, the potential moderating effect of trading frequency on overconfidence and investment decisions is examined and a moderated mediation model presented to elucidate the relationship between anchoring bias and investment decisions. The findings underscore the importance of understanding these biases and taking a scientific approach to trading, including by engaging in infrequent trading, to producing more rational investment decisions. Put differently, the study highlights the benefit of infrequent over frequent trading: Compared to those who trade less frequently, investors who trade more frequently are more susceptible to overconfidence and anchoring biases.

Interpretability Gone Bad: The Role of Bounded Rationality in How Practitioners Understand Machine Learning

While interpretability tools are intended to help people better understand machine learning (ML), we find that they can, in fact, impair understanding. This paper presents a pre-registered, controlled experiment showing that ML practitioners (N=119) spent 5x less time on task, and were 17% less accurate about the data and model, when given access to interpretability tools. We present bounded rationality as the theoretical reason behind these findings. Bounded rationality presumes human departures from perfect rationality, and it is often effectuated by satisficing, i.e., an inclination towards "good enough" understanding. Adding interactive elements---a strategy often employed to promote deliberative thinking and engagement, and tested in our experiment---also does not help. We discuss implications for interpretability designers and researchers related to how cognitive and contextual factors can affect the effectiveness of interpretability tool use.

The impact of geopolitical risk on sustainable markets: A quantile-time-frequency analysis

We examine the impact of Geopolitical Risk (GPR) on green, clean, and socially responsible markets by employing the newly proposed Wavelet Quantile Correlation, Cross-quantilogram and Causality-in-quantiles. Unlike earlier studies, we incorporate the GPR index to encompass the risk linked to conflict, acts of terrorism, and political tensions. In brief, our findings show that GPR emerges as a significant factor influencing market behavior, with distinct patterns observed across different time scales and trading horizons. Our results are beneficial for investors and portfolio managers to adopt more rational investment strategies and for policymakers to make appropriate policy arrangements.11Corresponding author: Ahmed H. Elsayed (ahmed.elsayed@uaeu.ac.ae)

Homo anthropologicus: Unexamined behavioural models in sociocultural anthropology

Inferences from ethnography in sociocultural anthropological arguments frequently rely on an unexamined model of the human mind and behaviour. Across a range of theoretical approaches, human thought and behaviour are implicitly understood as coherently following a single underlying cultural logic, described in terms such as ‘ontology’, habitus, political strategy. We term this implicit model Homo anthropologicus, by analogy with Homo economicus. Both simplify human behaviour and can thus lead to errors in its interpretation. We examine examples of Homo anthropologicus in anthropological approaches to ontology, caste, state evasion, and habitus. We propose that such accounts are erroneous in light of the multiple cognitive systems involved in human thought and behaviour, discussed with close reference to dual process theory. Unlike Homo anthropologicus, Homo sapiens’ behaviour is frequently inconsistent. Whilst anthropologists have long acknowledged this is the case, in practice, as we demonstrate through our examples, inconsistency is frequently seen as a problem to be explained away rather than as a feature of behaviour to be accounted for in its own right. We therefore conclude by calling for a greater degree of methodological reflexivity when making inferences from ethnography.

Asymmetric Effects of Uncertainty and Commodity Markets on Sustainable Stock in Seven Emerging Markets

The increase in global economic policy uncertainty (EPU), volatility or stock market uncertainty (VIX), and geopolitical risk (GPR) has affected gold prices (GD), crude oil prices (WTI), and stock markets, which present challenges for investors. Sustainable stock investments in emerging markets may minimize and diversify investor risk. We applied the non-linear autoregressive distributed lag (NARDL) model to examine the effects of EPU, VIX, GPR, GD, and WTI on sustainable stocks in seven emerging markets (Thailand, Malaysia, Indonesia, Brazil, South Africa, Taiwan, and South Korea) from January 2012 to June 2023. EPU, VIX, GPR, GD, and WTI showed non-linear cointegration with sustainable stocks in seven emerging markets and possessed different asymmetric effects in the short and long run. Change in EPU increases the return of Thailand’s sustainable stock in the long run. The long-run GPR only affects the return of Indonesian sustainable stock. All sustainable stocks are negatively affected by the VIX and positively affected by GD in the short and long run. Additionally, long-run WTI negatively affects the return of Indonesia’s sustainable stocks. Our findings contribute to rational investment decisions on sustainable stocks, including gold and crude oil prices, to hedge the asymmetric effect of uncertainty.

Role of Accounting Information in Decision Making in Co-Operative in Kirtipur Municipality, Kathmandu

The accounting information is used co-operative as well as business sectors. It makes easy to managerial and operational decision of an organization. The aim of this paper is to investigate the impact of accounting information on investment and marketing decision in co-operative in Kirtipur. Accounting information plays an important role in sustaining a competitive market. Rational investment and marketing decisions can save cooperatives from the present financial crisis. This research is quantitative in nature and deductive in approach. It followed field survey based on convenience sampling. SPSS was used to analyze the data collected from 60 usable questionnaires returned from respondents. The total population of the study is 96. The p-value is 0.000, which is less than 1% level of significance. So, the ANOVA table indicates that the model is fitted. There is a significant impact of accounting information on investment and marketing decisions. In the competitive age accounting information is important for investment and marketing related decision for survive and growth of co-operatives.

Expecting the Expected? Documenting Nostalgia Effects on Baseball Card Prices

Identifying anomalies, or empirical facts that contradict theoretical predictions, is a common form of proof by contradiction in economics and finance. We identify an apparent pricing anomaly in the market for trading cards: large and persistent death effects of about 20% are observed following the death of legendary baseball players. Rational investors should anticipate each player's eventual death, so these results suggest that profit opportunities are being left on the table. The arguably causal estimates come from interrupted time series models that adjust flexibly for time pre- and post-death and the time of sale using high-frequency sales data. The effect is largest in the days immediately following the death, but prices remain elevated for at least 60 days. Generally, our findings reaffirm the presence of a causal “nostalgia effect” of celebrity deaths on consumer demand for collectibles and products associated with the celebrity.

Post-COVID-19 Electric Vehicle Market in Poland: Economic-Based Determinants

Theoretical background: The theory of rational consumer choice significantly impacts the shape of the contemporary car market, which constitutes an essential part of the automotive industry and the national economy and has a considerable influence on the behavior of individuals. In the context of the car market, consumers’ decision-making process is subject to several factors, particularly in light of the EU’s initiative to transition the automotive industry towards zero emission solutions. Furthermore, this implies potential changes in the degree of impact on the course of transformation, adoption rate, and economic growth through network effects. Recent years have witnessed changes in various critical factors, alongside the emergence of new factors, which could significantly impact the competitiveness of electric vehicles in relation to internal combustion vehicles. Purpose of the article: The article aims to examine the current condition of the Polish car market in the post-COVID-19 period with particular emphasis on the electric vehicle market and indicate its present shape in comparison to the market of conventional vehicles from the supply perspective. Also, it attempts to identify and define the most critical factors that influenced the development of the market and their role in the coming years. Identifying and categorizing the most critical factors will allow us to indicate the current weaknesses of the zero-emission vehicle market. This may allow for more efficient identification and solving of problems standing in the way of its development. Research methods: In order to realize the goals of the research, several methods were used: a critical analysis of the literature on the subject; a quantitative analysis of statistical data was used along with qualitative research to examine the factors that impacted the car market in Poland. As a result, a network of categories describing the associations between factors and their effects on the researched topic was identified and studied. Main findings: Examination of Poland’s electric vehicle market reveals a complex interplay of variables across market. The identified combined factors impede mass adoption of battery electric vehicles, resulting in dynamic yet relatively insignificant annual percentage changes in market growth within the overall passenger vehicle market. The problems focus on governmental, economic and social factors, but also on very important technological and ecological factors, questioning in some cases the current form of electromobility on the Polish market.

The decision making criteria of a rational investor on the example of an investment portfolio analysis of listed companies and a basket of currencies

In today’s globalized world, investing is a key financial management strategy related to the hope of obtaining future economic benefits. Access to more and more information has created new opportunities for wealth creation, including investments in stocks, cryptocurrencies, gold, real estate and many other assets. The work emphasizes the importance of investing and diversifying the investment portfolio, especially in periods of inflation, using the example of a portfolio of listed companies compared to a currency portfolio. The study covers the period from December 2019 to December 2020, and the analysis aims to estimate the rate of return on investment based on the Markowitz and CAPM theories. The presented analysis method is applicable both in the academic environment and in real economic scenarios, encouraging further research on investments.

The effect of financial literacy and demographic variable on behavioral biases

The current research investigates the association between demographic factors, including financial knowledge and demographic characteristics like gender, occupation, age, education, and income, and investor behavior biases, including bias against overconfidence, disposition effect, and herding bias. Further enhancement of behavioural finance research is required in Indonesia. This study applied a quantitative analysis technique called structural equation modeling. Stock investors aged 17 and 40 were given questionnaires for this study. Respondent data collection was carried out by distributing questionnaires through several social media sites, such as Line, WhatsApp, and Instagram, to members of the investor’s community. The total number of respondents obtained from distributing this questionnaire was 170. According to the study, overconfidence bias significantly affects income and financial literacy. However, overconfidence bias does not affect gender, occupation, investment experience, education, or age. Furthermore, for behavioral biases, the disposition effect does not affect financial literacy or all demographic factors. Finally, for herding behavior bias, bias significantly affects financial literacy, investment experience, and income, but herding bias does not affect gender, occupation, education, age, or income. These results have implications for investors with a high level of financial literacy, which will help them determine rational investment decisions. This research also has implications for high-income investors who tend not to follow herding behavior.

Hidden Risks of Economic Abuse through Company Directorships

Economic abuse is a form of family violence that severely inhibits victim survivors’ capacities to rebuild their lives. Although its effects are widely felt, it remains a hidden problem. This article contributes to the burgeoning scholarship on economic abuse by investigating its perpetuation through family-owned companies. Victim survivors commonly bear the liability for business failure and phoenix activity as ‘straw’ directors. Recent reforms introduced to deter and penalise illegal phoenix activity have increased the risks for survivors who are coerced or defrauded into becoming directors. The study examines how corporate law and the courts have responded to straw directors in the context of family companies. It interrogates the notion that victim survivors assume responsibility for business decisions voluntarily, as rational economic men with relatively equal bargaining power. This article proposes reforms to disrupt harm from economic abuse through coerced directorships, and to militate against the unintended consequence of recent reforms.