Cognitive Biases That Influence and Impact The Decision-Making of Investors
Cognitive Biases That Influence and Impact The Decision-Making of Investors

Author(s): Arnita Sur, Joseph Durai Selvam, Nagendra BV, Ganesh. L
Subject(s): Business Economy / Management
Published by: Transnational Press London
Keywords: Cognitive dissonance; Overconfidence bias; Anchoring bias; Loss Aversion; Hindsight bias;
Summary/Abstract: This study was undertaken to understand how different cognitive biases affect the decision-making processes of individual investors. The research was conducted by classifying investors under various demographical factors, such as age, prior experience in investing and expectations of returns from investment. It has now become critical to document and understand how amateur and professional investors choose their portfolios. Behavioural finance is an area of business that analyses how psychological symptoms change the performance of individuals in financial markets, and even the impact it has on stock market performance, when looking to purchase not only the market, but also its outcome. It merges social, psychological and financial theories to explain how volatility in the securities market occurs without the intervention of corporations. In a nutshell, cognitive finance is a study on just how investors make systematic assessment mistakes or individual errors, whenever taking investment decisions. The study collects data from 46 respondents using purposive sampling methods and tests hypotheses on background variables and investment decisions, as well as multivariate analyses. Two variables, namely Overconfidence bias and Hindsight bias were found to be significantly associated with investment decisions. Through this study, it was suggested that the investors should be cautious about these independent variables, so that they can avoid irrational investment decisions.

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