INVESTOR PSYCHOLOGY AND DECISION MAKING; BASED ON OVERCONFIDENCE AND SELF ATTRIBUTION BIAS: EVIDENCE FROM ISLAMABAD STOCK EXCHANGE (ISE)

Abstract

The literature in behavioural finance and behavioural economics deviates from the conventional economic model in incorporating behavioural evidence on non-standard preferences and values, such as loss aversion, self-deception or attribution, or overconfidence. In the present world, investment decision is most important phenomena. Investment is current sacrifice for future benefits. Investor’s decision making is affected by the behavioural biases the most important of which is overconfidence (overconfidence related to accuracy of personal information).The other related bias is self-attribution, which causes an upward rise in investor’s overconfidence about the precision of information and foresight. This study examines the impact of behavioural biases such as overconfidence and self-attribution in decision making that result from the cognitive errors of information processing. This main purpose of this paper is to give empirical evidence on the implication of overconfidence and self-attribution bias on investor behavior and decision making. The result suggests that investors in Islamabad Stock Exchange are overconfident and this overconfidence in the private information and its accuracy and this have an impact on the stock investment decision. Whereas, the self-attribution bias is not showing a significant relationship towards decision making process.

Keywords

• Overconfidence, Self-Attribution, Investment Decision, Private Information