Interrelated Behavioral Biases and Their Impact on Investor’s Decision

Abstract

This study has focused mainly on identifying the impact of interrelated behavioral biases on investors’ decision in Pakistan. In this study, self-attribution, overconfidence and over optimism have been included as independent variables, whereas, investor’s decision has been considered as dependent variable. For this study, research has been conducted on the investors in Pakistan to empirically prove the relationship between variables mentioned above, along with an additional focus on the relationship between the three biases themselves. To prove this relationship, a survey has been conducted through an adopted structured questionnaire regarding this literature, in which investors in Pakistan Stock Exchange, United Bank Limited and Habib Bank Limited have been asked to share their experiences by filling the questionnaires. 200 filled questionnaires have been gathered. To generate the results on data gathered from the respondents, statistical instruments have been used – which include descriptive frequencies, reliability, correlation and regression. Results derived through statistical instruments have shown that there exists a significant negative relationship of self-attribution, overconfidence, over optimism (independent variables) with the investor’s decision (dependent variable), while the biases themselves share a positive correlation between themselves. Conclusively, it can be said that these interrelated behavioral biases significantly impact each other and investors’ decision. The findings in this research can be useful for stock brokers, individual investors, students and faculty of behavioral finance or any person who is in a position of taking investment decisions, in order to improve their cognitive thinking abilities and arriving on a rational investment decision.