Once Bitten Twice Shy, Does This Really Hold Analysis of Investment Biases

Abstract

This research examines the correlation between behavioural biases and investment choices in Pakistan. This study examines four behavioural biases in investment decisions: cognitive illusions, framing effects, heuristic biases, and snakebite biases. The descriptive and inferential statistics of correlation between behavioural bias and investment decisions are checked using multiple regression techniques. The research identified a strong and affirmative correlation between the four biases and investing decision-making. The statistics indicate that the "snakebite" effect is more pronounced in decision-making processes. Investors are often unaware of their behavioural biases, which can significantly influence their financial decisions. In equity investing, investors often follow the majority's decisions. The study's findings assist individual investors in comprehending the intricacies of stock trading and underscore the behavioural biases that result in poor investment choices. The absence of publicly available information significantly intensifies the investors' indifference. Individual investors need to have stock information in PSX to use heuristics to make informed investment decisions. We find that behavioural bias has a great effect on the decisions made by investors in the emerging economies, which in turn supports the prospect theory.