The Impact of Heuristics Bias on Investment Decision: An Empirical Study

Abstract

The purpose of the article is to investigate how heuristic bias affects investors’ investment decision. Understanding heuristic biases is essential for predicting and explaining human behaviour in various contexts, from consumer choices to financial decision-making and beyond. By identifying and categorizing different types of biases, researchers can discern patterns in decision-making that might otherwise remain obscure. The study takes into account four different types of heuristic bias, that is, availability bias, representativeness bias, overconfidence bias and adjustment and anchoring bias. It is very important to study heuristics bias because these biases can lead to deviations from the rational decision making. The knowledge of these biases can be used to develop strategies to improve decision making. With the aid of a questionnaire, the data is gathered. The method of convenient sampling is employed to choose 358 respondents. The data are analysed using Structural Equation Modelling and Descriptive Statistics. The study of the data reveals that the investors’ investment decisions are highly impacted by availability and adjustment and anchoring bias. Overconfidence and representativeness bias are insignificant.

DOI: https://doi.org/10.21863/jcar/2024.13.3.007

Keywords: Heuristics Bias, Availability Bias, Adjustment Bias, Overconfidence Bias, Adjustment and Anchoring Bias, Investment Decision, Irrational Decision

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