Breaking the myth about rational investor: Investors' susceptibility to heuristical and biased reasoning

Abstract

This study focuses on the question of rationality.Interest in decision making has been preoccupying researchers and public from many different fields and perspectives.Assumptions about consumer behavior shape companies' strategy and marketing activities, laws and public policies, bank products, etc.It affects the society as a whole.The discipline of economics largely contributed to defining (rational) preferences and choices of most (rational) individuals.The theory of rational choice has shaped classical, neoclassical, and mainstream economics in general.Although it has been widely contested, it had far-reaching effect in sociology, political science, philosophy, and even evolutionary theory (Browning, Halcli, & Webster, 1999).Since the middle of the 20 th century, however, many premises about rational consumer have been shattered.The work of Simon (1955), Tversky and Kahneman (1974, 1981, 1983), and Kahneman and Tversky (1979, 1992) contributed to more real and descriptive understanding of how people really reason.Recent economic crisis brought into light these rationalbehaving-people presumptions and gave more space to alternative explanations.One of them came from the field of

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