Behavioral Biases as Predictors of Investment Decision of Individual Investors in Pakistan

Abstract

Behavior Finance is a new field that combines attitudes, cognition, emotions, and feelings of cognitive psychology. This phenomenon explains why investors make rational financial decisions in the stock market. It also outlines the consequences of the interaction between investors and managers in financial and capital markets. And it offers more efficient options for investors and managers. Behavioral finance seeks to better understand and explain how behavioral, emotional, and cognitive factors affect investing in stock markets. Stock markets can positively impact economic growth by encouraging savings among individuals and providing opportunities for strong financing. Liquid stock markets can improve the distribution of capital and increase long-term growth prospects. Behavioral bias comes from behavioral finance theory, a theory that embraces finance and psychology. The idea of behavioral finance has started to gain importance since it became clear that people and markets are not rational. It is now clear that investors cannot succeed until they begin to exploit traditional finance theory's sophisticated techniques of behavioral finance. The present study seeks to explore the concept of overconfidence and self-attribution in the Lahore Stock Exchange market as a predictor of investment decisions in terms of age, gender, education level, and work experience. The results of the study are expected to be useful to develop guidelines for financial advisers, financial institutions, and investors.

Keywords: Behavioral Bias, Cognitive Psychology, Emotional Reactions, Overconfidence, Investment Decisions