Psychological Biases Research Articles

Exploring the Mediating Role of Financial Risk Tolerance between Heuristic Biases and Working Women Investors’ Investment Decisions

The increasing financial independence of working women has contributed to their growing interest in investment to enhance their wealth. Working women investors are prone to psychological biases and have a conservative approach to risk, which can affect their investment decisions (ID). The study explores the role of financial risk tolerance (FRT) as a mediator in controlling the link between heuristic biases and working women investors’ investment decisions. Three heuristic biases are investigated: representativeness, availability, and anchoring. A structured questionnaire has been used to procure data from 211 working women investors trading in the Indian stock market. PLS-SEM was used to determine the association between the constructs. According to the findings, representativeness has a positive impact on the women investors’ investment decisions as well as their financial risk tolerance, anchoring has a detrimental impact on working women investors’ investment decisions and their risk tolerance capacity, and availability positively influences women investors' risk tolerance. The ability to tolerate financial risk has a positive impact on the investment decisions of women investors. The results of the mediate study show that the risk tolerance ability of women investors partially mediates the interaction between heuristic biases and their investment decisions. This paper will assist women investors to become more aware of these heuristic biases and lessen their negative effects on their investment choices. Its further results in more precise evaluations of risk tolerance and, ultimately, more successful investment planning.

Behavioral Finance: Several Key Effects of Investor Decision-Making

This paper examines the field of behavioral finance. First, a review of the behavioral finance literature will highlight the key findings and theories that have emerged in this field. Second, this paper will also discuss the practical applications of behavioral finance, including how it can be applied to improve investment decisions and reduce cognitive biases. Finally, several future research directions that may further advance the field of behavioral finance are analyzed, such as exploring the role of emotions in financial decision-making and examining the impact of social factors on investor behavior, pointing out shortcomings and making extensions to current research in this field. This paper will specifically analyze behavioral finance in terms of loss aversion, market anomalies, framing effect and endowment effect, revealing the psychological bias and cognitive bias of human beings in the process of financial decision-making, and providing new perspectives and methods for understanding the operating mechanism of the financial market and investment strategies.

Mind Games in the Market: Unraveling the Impact of Psychological Biases on Your Stock Portfolio"

Mind Games in the Market: Unraveling the Impact of Psychological Biases on Your Stock Portfolio"

Loss Aversion, Overconfidence of Investors and their Impact on Market Performance: Evidence from the London Stock Exchange (FTSE100)

The Capital Asset Pricing Model (CAPM) has traditionally explained the relationship between risk and expected return, assuming efficient markets and rational investors. However, empirical evidence has increasingly challenged these assumptions, leading to the emergence of behavioural finance, which examines how psychological factors impact investor behaviour and market outcomes. This study explores the effects of two key behavioural biases—loss aversion and overconfidence—on the performance of FTSE100-listed companies. Using panel data models on a sample of six companies from industrial and service sectors between January 2004 and December 2022, our research finds that investor sentiment significantly influences market performance. Specifically, overconfidence correlates positively with the stock performance of industrial firms but does not affect service sector firms. Loss aversion, however, does not show a significant impact on performance in the UK market. These findings suggest that overconfidence may have a more pronounced effect on market performance compared to loss aversion. This has implications for portfolio managers and financial regulators, as understanding these psychological biases can enhance market predictions and stability. By incorporating investor sentiment into market analysis, stakeholders can better anticipate market fluctuations and mitigate potential risk.

Emotional Economics: The Role of Psychological Biases in Personal Investment Outcomes

Emotional Economics: The Role of Psychological Biases in Personal Investment Outcomes

Initial Public Offering (IPO) and Factors Influencing Investment Decision: Evidence from Dhangadhi

This study examines the initial public offering (IPO) and factors influencing investment decisions: evidence from Dhangadhi on the prospectus review, academic qualification, and experience. Prospect Theory and the Information Processing Perspective are discussed to understand the psychological biases and information processing capabilities that influence investors in IPOs. Data was collected through a survey of 200 respondents to investigate these factors empirically. The results of the study indicate significant relationships between the variables. The correlation analysis reveals strong positive correlations between the review of the prospectus and investment decision, as well as experience and investment decision. The correlation between academic qualification and investment decisions was positive but relatively weak. Furthermore, the regression analysis confirms the influence of these factors on investment decisions. The regression results demonstrate that reviewing a prospectus, academic qualification, and experience significantly affects investment decisions in IPOs. A higher review of a prospectus, educational qualifications, and experience are associated with more favorable investment decisions. The findings of this study have important implications for investors, financial professionals, and policymakers. Future research could consider a more extensive and diverse sample and investigate additional factors influencing IPO investment decisions.

Another look at the asymmetric relationship between stock returns and trading volume: evidence from the Markov-switching model

PurposeThe purpose of this paper is to bridge the gap between the existing theoretical and empirical studies by examining the asymmetric return–volume relationship. Indeed, the authors aim to shed light on the return–volume linkages for French-listed small and medium-sized enterprises (SMEs) compared to blue chips across different market regimes.Design/methodology/approachThis study includes both large capitalizations included in the CAC 40 index and listed SMEs included in the Euronext Growth All Share index. The Markov-switching (MS) approach is applied to understand the asymmetric relationship between trading volume and stock returns. The study investigates also the causal impact between stock returns and trading volume using regime-dependent Granger causality tests.FindingsAsymmetric contemporaneous and lagged relationships between stock returns and trading volume are found for both large capitalizations and listed SMEs. However, the causality investigation reveals some differences between large capitalizations and SMEs. Indeed, causal relationships depend on market conditions and the size of the market.Research limitations/implicationsThis paper explains the asymmetric return–volume relationship for both large capitalizations and listed SMEs by incorporating several psychological biases, such as the disposition effect, investor overconfidence and self-attribution bias. Future research needs to deepen the analysis especially for SMEs as most of the literature focuses on large capitalizations.Practical implicationsThis empirical study has fundamental implications for portfolio management. The findings provide a deeper understanding of how trading activity impact current returns and vice versa. The authors’ results constitute an important input to build and control trading strategies.Originality/valueThis paper fills the literature gap on the asymmetric return–volume relationship across different regimes. To the best of the authors’ knowledge, the present study is the first empirical attempt to test the asymmetric return–volume relationship for listed SMEs by using an accurate MS framework.

The influence of financial behavior on capital market investment decision making with mediating of financial literacy in Yogyakarta

The growth of capital market investors and financial literacy has increased every year and investors in making an investment decision However, financial theory argues that there are psychological biases that can influence investors in making inappropriate investment decisions. This study aims to examine the influence and analyze Overconfidence, Loss Aversion and Herding Bias on investment decisions and Financial Literacy as a mediating variable. Financial Literacy is used as mediating variable in the relationship of Overconfidence, Loss Aversion. However Herding Bias variables on Investment Decisions. This study uses non-probability sampling techniques to as many as 163 investors stock in Yogyakarta as respondents. Findings/Results: the study shows that overconfidence, loss aversion and herding bias have a significant effect on investment decisions and overconfidence, loss aversion and herding bias are not mediated by financial literacy in making investment decisions.

The journalistic preference for extreme exemplars: educational socialization, psychological biases, or editorial policy?

Abstract Exemplars are central in news reporting. However, extreme negative exemplars can bias citizens’ factual perceptions and attributions of political responsibility. Nonetheless, our knowledge of the factors shaping journalistic preferences for including exemplars in news stories is limited. We investigate the extent to which educational socialization, psychological biases, and editorial policy shape journalistic preferences for extreme negative exemplars. We field large-scale survey experiments to a population sample of journalism students, a nationally representative sample of citizens, and a representative sample of “young people” and obtain evaluations of news value, newsworthiness, and behavioral measures of the actual write-up of news articles. We find significant support for the role of editorial policy and limited support for the role of educational socialization and psychological biases. In a time where economic pressures and the proliferation of digital media potentially lead editors to prioritize clickbait, these findings suggest that structural biases in news coverage may be aggravated.

Research on Anchoring Effect

A psychological phenomena is the anchoring effect. It alludes to the idea of a persons judgment or choice being influenced by an otherwise unrelated reference point or anchor. Once the anchors value is determined in numerical anchoring, the persons following arguments, estimates, etc., may differ from what they would have been without the anchor. Traditional economics holds that people make rational decisions and are not distracted by meaningless numbers. The anchoring effect discovered by Daniel-Kahneman-and-Amos-Tversky is a very typical psychological bias, and it is a rejection of the assumption of a rational person. The anchoring effect refers to the fact that when people need to evaluate an event, they will use some specific value as an initial reference value, and this initial reference value is like an anchor that restricts the evaluation result.

THE INFLUENCE OF FINANCE KNOWLEDGE, FINANCIAL LITERACY, INDIVIDUAL EMOTIONAL INTELLIGENCE, AND PSYCHOLOGICAL BIAS FACTORS ON PERSONAL FINANCIAL MANAGEMENT

This study aims to determine the effect of Financial Knowledge, Financial Literacy, Individual Emotional Intelligence and Psychological Bias Factors on Personal Financial Management. The subject of this research is the z generation in Buleleng Regency, Bali. This research is a quantitative study using multiple regression analysis techniques, classical assumption test, analysis of the coefficient of determination test, and the t-test (Partial). The results of the study show that Financial Knowledge, Financial Literacy, Individual Emotional Intelligence and Psychological Bias Factors influence Personal Financial Management in the z generation in Buleleng Regency with an adjusted R-Square value of 0.508 or 50.8%. Proving the hypothesis is done by comparison between t-table and t-count in each regression model.

The Role of Anchoring Effect in the Stock Market Investment Decisions

Price anomalies in the stock market are often difficult to explain using traditional financial theories, and such price anomalies severely affect the specific investment behavior of investors in the stock market and the trend of stock price movements. In order to study the causes of these anomalies and conclude certain countermeasures, this paper combines behavioural economic theories to analyze the causes of stock price movements over a certain period of time in terms of stock price trends caused by psychological deviations of investors in a specific industry. In this paper, this study finds that relevant stock price data by analyzing stock price movements over a certain period of time and integrate them to further understand the impact of investors' psychological biases or heuristics on stock price movements. Finally, this paper provides targeted suggestions for investors and stock market policy makers to address the importance of psychological biases on investment decisions, and suggests investors to consider the influence of different psychological mechanisms in the process of stock investment and make more objective value estimates for stocks. Second, it is recommended that government departments should reduce their intervention in the stock market to reduce the impact of policy changes on the stock market and promote a healthier investment environment for the stock market. In addition, stock market policy makers establish stricter laws for the stock market to regulate the price changes and valuation system of the stock market.

An Analysis of Status Quo Bias and Its Applications in Behavioral Economics

Status quo bias is a common psychological bias in decision-making, and this kind of bias is strong enough to impact or bother peoples personal lives. So it is quite important to explore more about it. This article, through literature research and case analysis, indicates how the status quo bias comes out in aspects of brain science and how it applies to online medical services and consumer behavior. In conclusion, it was discovered that some signal changes in certain neurons in the brain lure people to accept the current situation. Besides, in terms of medical services, due to previous behavioral habits, people tend to ask for help at a local hospital rather than turn to online medical services. To reduce the status quo bias, service providers can increase the attractiveness of alternative options to the status quo. In terms of consumption, most irrational consumers will choose to ignore the free return policy when they shop. Merchants can take targeted measures, such as offering shipping insurance and significantly improving product quality, to fully explore the status quo bias.

How lack of knowledge on emissions and psychological biases deter consumers from taking effective action to mitigate climate change

How lack of knowledge on emissions and psychological biases deter consumers from taking effective action to mitigate climate change

Strategic asset allocation with distorted beliefs

We propose an approximate solution for the asset allocation model in which the dynamics of the investment opportunity set are subject to regime shifts and the regime updating/predicting procedures are contaminated by psychological biases, including optimism, pessimism, conservatism, representativeness, momentum, and reversal. We employ monthly U.S. data to study the model and find that the optimistic investor earns higher returns and outperforms the rational (Bayesian) investor. We find that the outperformance of optimism results from the return predictability and that learning errors of optimism are offset by the information contained in the data sample. Psychological biases that can generate a large variability in beliefs or state uncertainty induce the investor to tilt toward cash and bonds.

Reading the Signs: From Dyadic to Triadic Views for Identifying Experts

ABSTRACT A naturalistic approach to expert-identification begins by asking, ‘how do novices pick out putative experts?’ Alvin Goldman and Elizabeth Anderson, representing a fairly common approach, consider agents’ psychological biases as well as social situatedness. As good as this is, culture’s role in shaping cognitive mechanisms is neglected. An explanatory framework that works well to accommodate culturally-sensitive mechanisms is Peircean semiotics. His triadic approach holds that signs signify objects to interpreters. Applying the triadic model to expert-identification: novices interpret signs of expertise as pointing to particular experts. The main advantage of the framework is that it is significantly more nuanced than the Goldman-Anderson model in describing how agents identify experts. It explicitly accommodates cultural and agential differences in expert-identification. It also explicitly admits the possibility of rational disagreement in assessment of evidence for expertise. But these advantages come at a cost. Namely, it’s difficult in theory – as well as practice – to make one’s way into the semiotic system of someone from another culture to help guide them away from fraudulent experts. Even so, it’s a trade-off worth making since it organizes relevant details for expert-identification, which is a first step in sketching a better normative theory.

Describing the Psychological Biases That Affect Judicial Decisions and Proposing Policies to Minimise Their Negative Impact using Behavioural Economics

The purpose of this research paper is to examine the different psychological biases that affect judicial decisions as well as briefly a potential reason behind why this happens. It also discusses how biases in the courtroom can be minimized.

'College choice' under the COVID-19 pandemic: Sustainability of engineering campuses for future enrollments.

Engineering profession for students and diverse students for Engineering Campuses (ECs) is the prestige to have for both. Worldwide higher education has been impacted by COVID-19 pandemic, but particularly pulling padlocked doors of Indian engineering campuses (ECs) down. Students' attitudes regarding choice, liking, and preferences were also affected. Knowing how tough 'college choice' was before the pandemic, one can guess how difficult it will be today. The objective of this study was to explore students' perceptions of choice characteristics related to ECs and diverse students enabling choice decisions under the COVID-19 situation, and to discover any possible relationships among them. Research questions were qualitatively examined with the statistical confirmation of related hypothesizes by utilizing ANOVA and Regression analysis. A self-reported quantitative survey composed of a closed-ended structured questionnaire was administered on the students of first-year engineering who had recently enrolled in ECs of North Maharashtra Region of India, after pandemic hitting India. According to the study, ECs have several characteristics impacting students' selection of ECs under pandemic. The influence of proximity, image and reputation, educational quality, and curriculum delivery was significant in contributing sustainability of ECs. This influence was significant across students' psychological and behavioural biases on likes, choices, and preferences. Furthermore, multiple relationships were noted within the sub-groups of demographic, geographic, socioeconomic, academic performance, and psychological and behavioural traits due to the impact of ECs' characteristics on sustainability. The study has provided a framework for policymakers and administrators to strengthen repositioning towards sustainability while capturing potentially diverse enrolments. Even if we have to coexist with pandemic forever or with more similar pandemics, the findings of this study may undergo a fundamental transformation for ECs (existing and forthcoming). On the other hand, by understanding the importance and relations of choice characteristics may smoothen the complex nature of "college choice" for prospective students.

Aversion to loss of place: The endowment effect for local facilities

Facility-decline is often met with community responses including protective behaviour. These reactions to place-change are preceded by the conscious and unconscious valuation of public places as communal assets and subsequent negative evaluation of closure. Previous studies show that closure of local facilities can be perceived as a loss to the community. However, a gap in place-based research in geography and environmental psychology is the lack of attention to psychological biases, such the endowment effect, that could influence in the perceived loss of facilities because people attach more value to something they are used to ‘having’. This paper uses insights from prospect theory as a reference point to theorise the socio-psychological process of dealing with place-change caused by the closure of local facilities. Analysis of a survey conducted in the Province of Fryslân, Netherlands, shows that positive subjective valuation of eight local facilities, as well as negative evaluation of closure, is influenced by the current availability and the social function of this facility in the neighbourhood. The results indicate that the endowment effect exists in the context of facility decline. This paper hopes to ignite a discussion, and to stimulate further research into the effect of psychological biases on place-based behaviour. Moreover, since previous studies show that a perceived sense of ownership and emotional and cognitive bonds can lead to endowment effects in other context, this study paves the way for research into the relationship between collective psychological ownership, place attachment, the endowment effect and overall aversion to loss of place.

Exploring the Impact of Automation Bias and Complacency on Individual Criminal Responsibility for War Crimes

Abstract With advancing technology, complex decision-making in warfare, including targeting, is increasingly assisted by machines. Although involving humans in decision-making is often seen as a safeguard against machine errors, it does not always prevent them. Machines can make incorrect determinations or delay them when time is critical. In these cases, human operators, influenced by automation bias (excessive trust in machines’ determinations, despite the availability of contradicting or different information from other sources) or complacency (excessive trust in machines’ determinations, leading to reduced vigilance), may fail to recognize machine errors, potentially resulting in conduct amounting to a war crime. Considering the role of automation bias and complacency in the determination of the criminal responsibility of systems’ operators is crucial, especially, for understanding the accountability framework for war crimes involving autonomous weapon systems (AWS). By exploring how automation bias and complacency affect the determination of criminal responsibility for humans who operate AWS, this article offers insights for lawmakers at the national and international levels to understand complexities and effectively shape legislative responses with respect to criminal responsibility. This article also examines automation bias and complacency in psychology, their relevance in military operations employing AWS, and their potential to exonerate human operators from criminal responsibility. It concludes by advocating for legislative, organizational, and technical measures to counteract automation bias and complacency.