Behavioral Biases and Investment Management Decisions: The Mediating Role of Risk Perception and the Moderating Role of Financial Literacy

Iraj Khalid; Lubna Riaz

doi:10.31181/msa31202629

Authors

Iraj Khalid Department of Business Administration, Allama Iqbal Open University, Sector H-8, Islamabad, Pakistan Author https://orcid.org/0009-0008-1409-8260
Lubna Riaz Department of Business Administration, Allama Iqbal Open University, Sector H-8, Islamabad, Pakistan Author https://orcid.org/0000-0002-7979-985X

DOI:

https://doi.org/10.31181/msa31202629

Keywords:

Behavioral Biases, Self-Attribution Bias, Confirmation Bias, Management Science, Investment Decisions, Risk Perception Advances

Abstract

The purpose of the study is to explore the impact of behavioral biases on the investment decisions of individual investors of the Pakistan Stock Exchange, with the mediation and moderation mechanism. The study employs both theoretical and empirical evidence to examine the influence of behavioral biases in deviating from the conventional model of investment decision. Data is analyzed with the help of SmartPLS software drawn from a sample of 297 responses. The study finds that self-attribution bias, confirmation bias, regret aversion, and framing bias significantly influence investment decisions through risk perception. Self-attribution bias and regret aversion bias have a significant direct effect on investment decisions. The confirmation bias and framing bias show no significant direct impact. Research indicates that financial literacy does not moderate the link between risk perception and investment decisions. The study offers deeper insight into investor psychology and advances the decision-making process. It aims to help investors, policymakers, and management science advisors improve the performance on stock markets.

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