Behavioral Biases and their Importance in Shaping Overall Investment Behavior of Indian Engineers

Abstract

The study investigates the three broad dimensions viz. overconfidence, optimism and loss aversion of investment behavior of engineers and their impact on the investment behavior in context of Indian Stock Market. We have studied the importance of each Behavioral dimension/bias in shaping the overall investment behavior. Also, the sub-factors of each dimension are studied in terms of their relative importance in shaping the broad dimension. A structured questionnaire were developed and distributed among 423 Engineers who are engineering graduate. Multi-criteria technique of AHP is used to define the relative contribution of each of the behavioral bias in shaping the investment behavior. The three biases have been studied viz. overconfidence, loss aversion and overreaction. The results revealed that overconfidence is the most important bias and plays most important role in shaping investment behavior followed by loss aversion and optimism. The most important factor in deriving overconfidence is self-attribution. Results also reveal that most of the engineers are loss averse because they do not like to realize their losses. However, they are not so optimistic for the stock market that they dont expect the price rise even after a long fall.

Keywords: Investment Behavior, Over-confidence, Optimism, Loss Aversion, AHP

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