Considering the relationship amongst behavioural finance, risk aptitude and investment profiles in investment decisions

Abstract

The study field of behavioural finance is well-known in the financial and investment environment. The concept implies that investors do not necessarily make rational investment decisions. It argues that investment decisions are often influenced by emotional or other non-rational factors leading to irrational investment choices. One may conclude that in many instances investors display investment behaviour in line with behavioural finance theory without realising it. The study field of behavioural finance based on the “emotional” experiences of investors when investing identified different “types of emotional experiences” labelled as behavioural finance biases which may lead to or cause subjective investment decision-making. The aim of this study was to configure whether behavioural finance biases influence the investment decisions of different categorised age and gender groups and if so which age category and gender is mostly affected by which bias. A questionnaire based on previous research and adjusted for relevance, was developed and distributed to study participants with the help of a financial advisory company. Results from the study indicated that a deviation exists between the theoretically expected level of risk that investors will assume and the real level of risk assumed. Behavioural finance biases seems to be largely responsible for this deviation. As an example it was found that investors in the spending phase (retirement phase) are mostly subjected to the availability bias whereas female investors are mostly subjected to the regret bias.