Evaluation of behavioral biases affecting investment decision making of individual equity investors by fuzzy analytic hierarchy process

Abstract

Purpose Research in the area of behavioral finance has demonstrated that investors exhibit irrational behavior while making investment decisions. Investor behavior usually deviates from logic and reason, and consequently, investors exhibit various behavioral biases which impact their investment decisions. The purpose of this paper is to rank the behavioral biases influencing the investment decision making of individual equity investors from the state of Punjab, India. This research would provide valuable insight into the different behavioral biases to investors and other participants of the capital market and help them in improving investment decisions. Design/methodology/approach The research is conducted on the individual equity investors of Punjab, India. Fuzzy analytic hierarchy process was applied to rank the factors influencing the decision making of individual equity investors of Punjab. The primary factors considered for the study are overconfidence bias, representative bias, anchoring bias, availability bias, regret aversion bias, loss aversion bias, mental accounting bias and herding bias. Findings The three most influential criteria were herding bias, loss aversion bias and overconfidence bias. The five most influential sub-criteria were “I readily sell shares that have increased in value (C61),” “News about the company (Newspapers, TV and magazines) affects my investment decision (C84),” “I invest each element of my investment portfolio separately (C71)” and “I usually hold loosing stock for long time, expecting trend reversal (C52).” Research limitations/implications Although sample survey conducted in the present study was based on a limited sample selected from a particular area that truly represented the total population, it is considered as the limitation of this study. Practical implications The outcome of this research provides investors with a better understanding of behavioral biases that influence their decision making. This study provides them a guideline on different behavioral biases that they should consider while making investment decisions. Originality/value The research model is based on the available literature on behavioral finance and the research results and findings would add value to the existing knowledge base.

Over Confidence, Mental Accounting, and Loss Aversion In Investment Decision

“…Referring to the prospect theory, this is possible because investors think that the investment made is more like a choice between the gain and loss of investment. The results of this study support the research conducted by Aziz & Khan (2016), but does not support the results of research conducted by Cherono et al, (2019); Hunguru et al (2020); Isidore R & Christie (2019); Jain et al, (2019);S Hallale & Gadekar (2019). This difference is possible due to cultural differences, differences in the age of respondents, and differences in existing technological developments so that technological advances have an important role in disseminating information to investors.…”

“…In the related analysis, Samuelson & Zeckhauser (1988) introduced the term "status quo bias" after documenting the tendency to maintain the status quo in decision making. Previous research examining the relationship of loss aversion to investment decisions has had various results such as Cherono et al (2019); Hunguru et al (2020); Isidore R & Christie (2019) shows a significant relationship of loss aversion to investment decisions, and S Hallale & Gadekar (2019) indicates a weak relationship, meanwhile Aziz & Khan (2016); and Jain et al (2019) results that there is no relationship between loss aversion and investment decisions. Furthermore, in this study will discuss these financial behaviors towards community investment decisions, especially investments in capital market.…”

“…Several studies have shown inconsistent results regarding the effect of overconfidence on investment decisions. Research Cherono et al (2019); Hunguru et al (2020); S Hallale & Gadekar (2019) shows a significant result overconfidence affects investment decisions, even Aziz & Khan (2016); Jain et al (2019); and Pikulina et al (2017) shows the results of a robust, while Isidore R & Christie (2019); Wulandari & Iramani (2014) shows that there is no effect of overconfidence on Journal of Auditing, Finance, and Forensic Accounting, Vol. 9, No.…”

Resistance to change in the financial management of small family-owned firms: a grounded theory of family firms in Laos

“…However, other researchers have demonstrated that family firms often find these changes unwanted and radical (Broadbent et al , 2001; Gross and Geiger, 2017). Bourdon and Jaouen (2016), Oreg (2018), Baker et al (2019) and Jain et al (2019) highlight that the potential of resistance to change should reduce in confidence biases to a more compressive in working capital management. This research focusses on resistance to change in the financial management of Laotian family firms.…”

Impact of Behavioral Biases on Investment Performance in Pakistan: The Moderating Role of Financial Literacy

“…Though there are several biases which impact upon investors' decision making but we have selected certain major biases which are supposed to influence the investors' behavior in the emerging markets. Jain, Walia, and Gupta (2019) ranked the behavioral biases which influence the investors' decision making in India. Where they applied Fuzzy analytic hierarchy process to rank the factors influencing the retail investors' decision making.…”