The Effects of Personality Types and Demographic Factors on Overconfidence Bias and Decision Making of Investment Types

Abstract

In financial management theories an investor will act rationally and make a desicion to invest based on the rules in the financial management theory. Nevertheless, in reality the decision making to invest is very often irrational and not in accordance with the financial management theory. This deviation is caused by the bias of investors’ behaviour in making a decision. Investors who only focus on the return of an investment without paying attention to the risks are said to experience overconfidence bias. This research analyses the factors which are considered to influence investors with overconfidence bias in deciding the investment types. The factors are personality type, marital status, income level, work experience, and fields of study that have been taken. This research can contribute to completing the study of financial management, particularly in the investment decision and putting psychological factors in the analysis of financial management

Herd Instinct Bias, Emotional Biases, and Information Processing Biases in Investment Decisions

“…In this study overconfidence is proven to be a predictor of investment decisions. The results of this study support the results of research by Armansyah (2021) that overconfidence has proven to be a predictor of investment decisions by capital market investors and also supports and Nofsinger (2016), Khan et al (2017), Tjandrasa and Tjandraningtyas (2018), and Qasim et al (2019. This is possible, confidence is needed in making investment decisions in the capital market because every decision taken has risks. Every investment decision requires confidence from investors to make a decision but overconfidence will also lead to disaster.…”

“…This is interesting because this behavioral bias can lead to a crisis in a country (Armansyah, 2018) or even when the Covid-19 pandemic conditions affect the capital market (Allam et al, 2020). Several studies have found that overconfidence, endowment bias, confirmation bias, and recency bias all have a significant impact on investment decisions (Tjandrasa & Tjandraningtyas, 2018;Peñón & Ortega, 2018;Qasim et al, 2019;Rudiawarni et al, 2020;Rabbani et al, 2021;Armansyah, 2021;Gavrilakis & Floros, 2022). The purpose of this research is to gather evidence of irregularities in financial behavior such as herd instinct bias, emotional bias, and information processing bias in investment decision making as information technology and communication media evolve, as well as new policies in the Indonesian capital market.…”

Risk Profiling of Secondary Equity Investors From the Chennai City of India Based on the Big Five Personality Model

“…Agreeableness: Investors of this personality type are less likely to choose risky investment options (Pak & Mahmood, 2015;Tjandrasa & Tjandraningtyas, 2018). Agreeableness personality decreases the risk-taking propensity (Markey, Markey, Ericksen & Tinsley, 2006;Nicholson et al, 2005;Anic, 2007;Deck et al, 2008;Durand et al, 2008;Pinjisakikool, 2018).…”

“…Openness: Openness is positively related with investor's risk tolerance behavior (Zhuan et al, 2016;Pan & Statman, 2013;Kowert & Hermann, 1997;Pak & Mahmood, 2015). Investors of this personality type are more likely to choose risky investment options (Durand et al, 2008;Ali & Waheed, 2013;Tjandrasa & Tjandraningtyas, 2018). This personality increases the risk-taking propensity (Nicholson et al, 2005;Deck et al, 2008;Anic, 2007).…”

The Impact of Information Technology Infrastructure Flexibility and Behavioral Biases on Investment Decision Making

“…Overconfidence is a common bias among investors that makes them very confident in their expertise, which leads to ignoring investment risks (Kumar & Goyal, 2015). Overconfidence bias is a problematic issue when making an investment decision because of the potential for financial losses (Tjandrasa & Tjandraningtyas, 2018). Uncertainty is an essential factor affecting overconfidence (Ancarani et al, 2016).…”