Cognitive Bias and the Extraversion Personality Shaping the Behavior of Investors

Muhammad Ishfaq · Mian Sajid Nazir · Muhammad Usman

36 citations0/0 files storedFrontiers in Psychology

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Decision-Making and Behavioral Economics Financial Markets and Investment Strategies Financial Literacy and Behavior

Abstract

The paper examines the direct and indirect effects (via investors' risk perception) of heuristic biases on investors' irrational behavior in decision-making. The study also investigates the moderating effect of investors' extraversion on both the direct and the indirect associations between heuristic biases and irrational decision-making. Based on survey data collected from 247 investors registered in various brokerage houses in Pakistan and the analyses (mediation and moderation) performed using the Process Macro technique (proposed by Hayes, 2017) in SPSS, the results of this study reveal that heuristic biases positively affect investors' irrational decision-making both directly and indirectly via risk perception. The results reveal that extraversion moderates both direct and indirect associations between heuristic biases and investors' irrational behavior in decision-making. Our findings carry useful practical implications for organizations' policymakers.

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References

2003Common method biases in behavioral research: A critical review of the literature and recommended remedies.1979Prospect Theory: An Analysis of Decision under Risk 1974Judgment under Uncertainty: Heuristics and Biases 1975Judgment under Uncertainty: Heuristics and Biases 1958The Cost of Capital, Corporation Finance and the Theory of Investment 1970Efficient Capital Markets: A Review of Theory and Empirical Work 1981Structural Equation Models with Unobservable Variables and Measurement Error: Algebra and Statistics 1987Perception of Risk

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