Intuitive Thinking, Behavioral Biases and Performance of Professional Investors in Tehran Stock Exchange

Abstract

Objective: This study aims to explain the relationship between cognitive abilities and faith in intuition with behavioral biases and also to explain the relationship between behavioral biases and performance of professional investors in the Tehran Stock Exchange. We compare two different measures of impulsive or intuitive behavior, examining their effect on anchoring bias and conjunction fallacy, and finally examining the effect of behavioral biases on investors' performance. Methods: The sample consists of 311 professional investors in the capital market whose data were collected via questionnaires. Chi-squared test, Mann WhitneyU test, ordinary least squares, and probit regression were used to analyze the data. Results: The results show that faith in intuition has a positive and significant effect on anchoring bias and conjunction fallacy. While cognitive ability has a negative and significant effect on the conjunction fallacy. The results also show that faith in intuition has a negative and significant effect on return. The results of regression analysis also show that gender reinforces the negative effect of cognitive ability and the positive effect of faith in intuition on the conjunction fallacy. Conclusion: The results show that faith in intuition is more related to behavioral biases and performance than cognitive abilities, and is more informative overall.

Keywords

• intuitive thinking
• cognitive abilities
• faith in intuition
• anchoring bias
• conjunction fallacy