Behavioral Finance: A Study of Affect Heuristic and Anchoring in Decision Making of Individual Investors

2013 ◽  
Author(s):  
Alberto S. Matsumoto ◽  
Jose L. B. Fernandes ◽  
Israel Karlos Ferreira ◽  
Paulo CCsar Chagas
Keyword(s):  
Decision Making ◽  
Behavioral Finance ◽  
Individual Investors ◽  
Affect Heuristic

BEHAVIORAL FINANCE: A STUDY OF AFFECT HEURISTIC AND ANCHORING IN DECISION MAKING OF INDIVIDUAL INVESTORS

2014 ◽  
Vol 14 (1) ◽  
pp. 59-64
Author(s):  
Jose Fernandes ◽  
Alberto Matsumoto ◽  
Paulo Chagas ◽  
Israel Ferreira
Keyword(s):  
Decision Making ◽  
Behavioral Finance ◽  
Individual Investors ◽  
Affect Heuristic

scholarly journals GROUP BEHAVIORAL BIASES AFFECT FINANCIAL DECISIONS UNLIKE INDIVIDUAL BEHAVIORAL BIASES

2020 ◽  
Vol 15 (1) ◽  
Author(s):  
Marcelo Henriques de Brito ◽  
Paula Esteban do Valle Jardim
Keyword(s):  
Decision Making ◽  
Group Dynamics ◽  
Behavioral Finance ◽  
Institutional Investors ◽  
Group Behavior ◽  
Individual Investors ◽  
Cognitive Errors ◽  
Financial Decisions ◽  
Behavioral Biases ◽  
Group Members

This work presents a new approach to behavioral finance with a theoretical contribution by suggesting and discussing with examples a list of group behavioral biases along with established individual behavioral biases, bringing, hence, an additional outlook on how behavioral biases affect financial decisions. While individual behavioral biases are detected in individuals acting alone, group behavioral biases require the scrutiny of group behavior. This awareness may be particularly important to institutional investors, whose decisions basically stem from a committee or a group that will exhibit behavioral biases depending on how the group members interact between themselves when making a decision, which may include negotiation activities and not necessarily be related to personality or hierarchy. The focus on individual investors deciding on personal investments explain the need of work already developed in behavioral finance, which focus on individual behavioral biases, which may be a consequence from either cognitive errors or emotional biases. However, decisions from institutional investors basically stem from a committee or a group that will exhibit behavioral biases depending on how the group members interact between themselves when making a decision. To address the challenge of identifying causes and consequences for unexpected or unsuitable financial decision-making within a group, this work initially retrieves previous work on individual behavioral biases, linking emotional biases and cognitive errors to the “system 1” and “system 2” decision-making framework. Then, a conceptual contribution of this paper, which may be particularly relevant for institutional investors, is to explain with examples - after research and experience - which are the group behavioral biases and their impact upon financial decisions. Individual behavioral biases already acknowledged in other works on behavioral finance are contrasted in this work to the suggested group behavioral biases. Furthermore, this work suggests that there are two broad types of group behavioral biases: group dynamics biases and information-acceptance biases. Each broad type is subdivided into biases related to the structure of the group and biases related to how the group decision-making procedure occurs. Group dynamics biases related to the manner the group is structured are the following: kin bias (belonging bias), harmony bias, and competition bias. On the other hand, group dynamics biases may be sorted according to five different decision-making procedures, namely: herding, fad bias, Plato bias (denial bias), scarcity bias, and home bias.

scholarly journals Impact of Behavioral Factors in Making Investment Decisions and Performance: Evidence from Pakistan Stock Exchange

Market Forces ◽  
2021 ◽  
Vol 16 (1) ◽  
pp. 22
Author(s):  
Muhammad Rehan ◽  
Jahanzaib Alvi ◽  
Lubna Javed ◽  
Baber Saleem
Keyword(s):  
Decision Making ◽  
Behavioral Finance ◽  
Stock Exchange ◽  
Investment Decision ◽  
Investment Decisions ◽  
Individual Investors ◽  
Behavioral Factors ◽  
Factors Affecting ◽  
Investment Decision Making ◽  
The Impact

Market irregularities and irrational behavior triggered investor’s changes in the stock market, and this has led to an investigation into the impact of various behavioral biases and factors affecting decision-making for individual investors. The quality of individual investor behavior in making stock investment decisions is very important to be understood as a reference of the movement of the capital market. This study investigated the role of behavioral finance and investor psychology in investment decision-making at the Pakistan Stock Exchange (PSE). Using a sample of 147 individual investors, the study established that behavioral factors such as Herding, Heuristic, Market and Prospect that affected the decisions of the investors operating at the Pakistan Stock Exchange (PSE). As there are a few studies in Pakistan related to behavioral finance, so this study mainly contributes to the field of behavioral finance in Pakistan. This study focusses on existing theories of behavioral finance which led to develop the hypothesis. The result of the analysis is that the four variables have greatly influenced the investment decision and return on investment. All behavioral variables have a significant impact on the decision-making process of investors, which led to the acceptance of all assumptions regarding the level of influence of behavioral factors in decision making for individual investors

scholarly journals Pengaruh Faktor Demografi dan Literasi keuangan dengan Behavior Finance dalam Pengambilan Keputusan Investasi

2021 ◽  
Vol 11 (2) ◽  
pp. 237-248
Author(s):  
Elkunny Dovir Siratan ◽  
Temy Setiawan
Keyword(s):  
Decision Making ◽  
Behavioral Finance ◽  
Financial Literacy ◽  
Structural Equation ◽  
Investment Decision ◽  
Demographic Factors ◽  
Individual Investors ◽  
Portfolio Performance ◽  
Investment Decision Making ◽  
The Impact

The investment decision-making process is influenced by various factors, including financial literacy and demographic factors. This research examines the impact of demographic factors and financial literacy with behavioral finance as a mediation on investment decision making.  This research using structural equation model (SEM) analysis. The result shows that demographic factors through gender, age, education, income, occupation and experience have an influence and cause a specific behavior in investment decision making. Then the financial literacy factor has an influence in reducing negative behavior. Likewise, demographic factors and financial literacy with behavioral finance as a mediation on investment decisions have a positive influence. The existence of behavior that is manages with planning, financial literacy support, and demographic factors owned by individual investors will create an opportunity for market momentum. Which help maximize profit, better investment and portfolio performance, avoid risks, better investment decision, and forming trading strategies.

scholarly journals Investment Decisions, Herd Behaviour and Retail Investors

2019 ◽  
Vol 8 (10) ◽  
pp. 3291-3294
Keyword(s):  
Decision Making ◽  
Behavioral Finance ◽  
Psychological Factors ◽  
Investment Decisions ◽  
Sampling Technique ◽  
Primary Data ◽  
Individual Investors ◽  
Herd Behavior ◽  
Retail Investors ◽  
The Impact

Behavioral finance explains that cognitive biases influences investor decision making. Due to the influence of different behavioral biases investors do tend to make irrational decisions. Behavioral finance has highlighted the failure of traditional finance theories to account for human emotions when making investment decisions. While traditional finance theories disregard human element in decision-making, behavioral finance theories take into account the human phycology while explaining theories. Many studies have found and explained many biases that are exhibited by investors which lead to irrational investment decision making on their part. One among the many the biases herding can be considered among the most important behavior which leads to low quality investment decisions by investors. While compared to studies about herd behavior of institutional investors, the studies about individual retail investors in less. The motive behind this study is to clarify the role of demographic factors and psychological factors that influence herd behavior among individual investors. In this study the impact of demographics and psychological factors on herd behavior was studied. For this survey, primary data was collected using Judgment sampling technique and the results analyzed. Retail investors in Chennai exhibited herd behavior with regard to investment decisions. Eight factors were found to influence herd behavior.

scholarly journals Bihevioralne financije i teorija „Crnog labuda“

2017 ◽  
Vol 5 (1) ◽  
Author(s):  
Ana Brajković ◽  
Anita Radman Peša
Keyword(s):  
Decision Making ◽  
Behavioral Finance ◽  
Global Financial Crisis ◽  
Individual Investors ◽  
Specific Information ◽  
Rational Behavior ◽  
Black Swan ◽  
New Approach ◽  
Rational Decision Making ◽  
The Global Financial Crisis

The regular appearance of anomalies in the conventional economy contributed to creation and shaping of behavioral finance. These anomalies directly or indirectly threatened the modern financial and economic theory, based on rational behavior and rational decision-making. Behavioral finance represents a new approach to the field of finance, which takes into account psychological aspects of human and investor's life. Psychology defines certain concepts of behavior and prejudices that have contributed to the irrational and often harmful decision-making process. The focus of behavioral finance is on how individual investors make decisions, that is, how they interpret and react to specific information. The authors also present behavioral finance through the term of Black Swan defining it as an unpredictable event with serious consequences and when such event happens, people tend to give explanations to make it predictable and explainable. Event with The Black Swan label, for example, is the global financial crisis of 2008. The authors analyze and other modern financial theories and compare them with the standard financial theories to point out the need for further research in the field of financial theory.

scholarly journals Modeling Psychology in Islamic Wealth Management

2017 ◽  
Vol 9 (10) ◽  
pp. 64
Author(s):  
Ahmed Hamed Al-Abbadi ◽  
Adam Abdullah
Keyword(s):  
Decision Making ◽  
Behavioral Finance ◽  
Psychological Factors ◽  
Individual Investors ◽  
Financial Advisors ◽  
Socially Responsible ◽  
Client Experience ◽  
Wealth Management ◽  
Socially Responsible Investments ◽  
Ultimate Objective

This paper proposes a conceptual framework for modeling psychology in Islamic wealth management. Incorporating psychology into finance would significantly contribute to our understanding of the behavior of individual investors as well as market behavior. Utilizing the findings of behavioral finance and financial therapy, along with industry megatrends, Islamic wealth management could step further in fulfilling its ultimate objective of promoting social welfare. This is can be achieved by exploring and identifying the psychological factors that affect the clients’ decision-making and then behaviorally and cognitively helping them to engage in socially-responsible investments, projects and initiatives. In operationalizing this model, financial advisors/wealth managers should adopt a comprehensive client discovery and profiling method and apply Fintech innovations in producing complex analytics and thereby enriching the client experience.

scholarly journals Lebanese Investors’ Decision Making Analysis from Conventional and Behavioral Perspectives Simultaneously

2021 ◽  
Vol 13 (4(J)) ◽  
pp. 50-59
Author(s):  
Latifa Ghalayini ◽  
Sally Ziad Alkees
Keyword(s):  
Decision Making ◽  
Behavioral Finance ◽  
Regression Models ◽  
Investment Decision ◽  
Profit Maximization ◽  
Individual Investors ◽  
Factor Analyses ◽  
Main Factors ◽  
Investment Process ◽  
And Control

The investment decision Process varies from one individual to another and from one country to another respectively. These decisions are usually taken based on either a Conventional basis or linked to the sentimental side of investors and reflected through behavioral finance gateway, where biases and psychological side of investors control their way of thinking and affect their investment decisions endlessly. Furthermore, based on previous literature the majority of investors tend to incorporate both gateways during their investment process as they don’t depend solely on Conventional gate, but their psychological part appears to play a big role while deciding and similarly for Lebanon. However, the main aim of this paper lies in investigating the main factors from both gates triggering Lebanese individual investors’ decision-making during their investment process. Moreover, the empirical part lies on focusing on a bunch of samples from individual Lebanese investors distributed along with most Lebanese districts; where 211 complete responses are interpreted within the SPSS program, undergoing factor analyses and Regression models. Results obtained indicates that Lebanese individual investors tend to incorporate both gateways in their investments decision, where the main goal stays utility and profit maximization; that to say tending to seek profits regardless of the investment field and approach. Nevertheless, during seeking profits Lebanese investor is being exposed to certain behavioral errors and biases that appear to impact and control his decisions significantly during investment making the process so far, and theses biases are affecting the Lebanese individual investors clearly more than that of conventional ones.

scholarly journals The Impact of Behavioral Finance on Lebanese Investors’ Decision Making

2021 ◽  
Vol 25 (1) ◽  
pp. 112
Author(s):  
Pr.Latifa Ghalayini ◽  
Sally Ziad Alkees
Keyword(s):  
Decision Making ◽  
Behavioral Finance ◽  
Structural Equation ◽  
Psychological Theory ◽  
Equation Model ◽  
Individual Investors ◽  
Subjective Judgement ◽  
Expected Utility Maximization ◽  
Regret Aversion ◽  
The Impact

The inability of the traditional expected utility maximization of rational investors (within the efficient markets Framework) to explain many empirical patterns; was the main stimulus beyond the appearance for another track to resolve and analyze this inconsistency; through combining behavioral and cognitive psychological theory together where Behavioral Finance is known mainly as the irrational part that deals with investors’ Sentimental side. Furthermore it can be agreed on that behavioral finance is considered as “Subjective judgement” where ideas and decisions cannot be transmitted to other’s knowledge, as each one acts from his own point of interest; unlike conventional finance paradigm. Therefore, this paper seeks to determine the main behavioral errors or biases that are faced mainly by the Lebanese individual investor during decision making process. Results obtained by analyzing 211 questionnaires through SPSS software to develop a Structural equation model. Findings prove that Over Confidence and regret aversion are the main behavioral biases that control the Lebanese individual investors’ decision making.

Segments Influencing Individual Investors Behavior And Their Investment Decision

2019 ◽  
Vol 118 (9) ◽  
pp. 154-160
Author(s):  
Dr. Kartikey Koti
Keyword(s):  
Decision Making ◽  
Social Factors ◽  
Stock Markets ◽  
Investment Decision ◽  
Individual Investors ◽  
Factors Affecting ◽  
The Social ◽  
Karnataka State ◽  
Essential Idea

The essential idea of this assessment is investigate the social factors affecting particular theorists' decisions making limit at Indian Stock Markets. In the examination coordinated standard of direct is Classified subject to two estimations the first is Heuristic (Decision making) and the resulting one is prospect.. For the assessment coordinated the data used is basic natured which is assembled through a sorted out survey from 100 individual money related authorities based out in Hubli and Dharwad city, Karnataka State in India on an accommodating way. The respondents were both sex and overwhelming part male were 68% . These theorists were having a spot with the age bundle between35-45 which is 38%. These respondents have completed their graduation were around 56%. These respondents had work inclusion of 5 to 10 years which is 45% and the majority of which were used in government portion which is 56%. Their compensation was between 4 to 6 Lakh and were fit for placing assets into business areas. The money related experts were widely masterminded placing assets into different portfolios like 32% in Share market and 20 % in Fixed store. These examiners mode to known various endeavor streets were through News, family and allies.  

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