Heuristic Biases as Mental Shortcuts to Investment Decision-Making: A Mediation Analysis of Risk Perception

Jinesh Jain, Nidhi Walia, Himanshu Singla, Simarjeet Singh, Kiran Sood and Simon Grima ()
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Jinesh Jain: Sri Aurobindo College of Commerce and Management, Ludhiana 141007, Punjab, India
Nidhi Walia: University School of Applied Management, Punjabi University, Patiala 147002, Punjab, India
Himanshu Singla: University School of Applied Management, Punjabi University, Patiala 147002, Punjab, India
Simarjeet Singh: Great Lakes Institute of Management, Gurgaon 122413, Haryana, India
Kiran Sood: Chitkara Business School, Chitkara University, Rajpura 140401, Punjab, India
Simon Grima: Department of Insurance and Risk Management, Faculty of Economics Management and Accountancy, University of Malta, MSD 2080 Msida, Malta

Risks, 2023, vol. 11, issue 4, 1-22

Abstract: In the last two decades, research on behavioural biases has grown dramatically, fuelled by rising academic interest and zeal for publication. The present study explores the mediating role of risk perception on the relationship between heuristic biases and individual equity investors’ decision-making. The study uses Partial Least Square Structural Equation Modelling (PLS–SEM) to examine the survey data from 432 individual equity investors trading at the National Stock Exchange (NSE) in India. Risk perception is found to play a partial mediating role in the relationship amid overconfidence bias and investment decision-making, availability bias and investment decision-making, gamblers’ fallacy bias and investment decision-making and anchoring bias and investment decision-making, whereas it is found to play the full mediating role in the relationship between representativeness bias and investment decision-making. The result of the present study provides valuable insights into the different behavioural biases of capital market participants and other stakeholders such as equity investors, financial advisors, and policymakers. The present study solely relied on the heuristic biases of individual equity investors. However, in the real world, many other factors may impact the investment decision of individual equity investors. This has been considered a limitation of the study. The present study solely relied on the heuristic biases of individual equity investors. However, in the real world, many other factors may impact the investment decision of individual equity investors. This has been considered a limitation of the study.

Keywords: heuristics; risk perception; investment decision-making; overconfidence; anchoring; gamblers’ fallacy; PLS-SEM; PLS predict (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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