Empirical Testing Of Cognitive and Emotional Biases on Financial Decision with a Moderating Role of Financial Literacy

Abstract

The main purpose of study is to analyze the impact of cognitive biases (mental accounting and availability) and emotional biases (risk aversion and overconfidence bias) on financial decision making with a moderating role of financial literacy. Crosssectional research design has been used for this study to determine the impact of these cognitive and emotional biases on financial advisors, investors of national saving centers and bank professionals while making financial decisions. Simple random sampling has been used to collect data from 262 respondents. Primary technique has been used to collect data using 5 Likert scale. Linear Regression, Pearson Correlation Technique, Descriptive Statistics, Cronbach Alpha test and Andrew F Hayees Process has been used for data analysis. The study has found that decision of investor is positively influenced by overconfidence bias, availability and risk aversion while mental accounting has no positive influence on financial decision making of investor. The study shows that that there is a positive moderating role of financial literacy between mental accounting bias, availability bias and overconfidence bias and the financial decision making of an investor. However there is no positive moderating role of financial literacy between risk aversion bias and financial decision of investor.