Influence of behavioral biases on investment decisions. The importance of financial education in times of crisis

Tamara Armenteros-Ruiz (), Leandro Benito () and María-Celia López-Penabad ()

Revista Galega de Economía, 2023, vol. 32, issue 1, 1-27

Abstract: While classical financial theories assume the rationality of the individual, Behavioral Finance supports the influence of cognitive and emotional aspects on investment decisions. The objective of this study is to contribute in this field by analyzing the presence of five biases –Overconfidence, Herd Behavior, Player Fallacy, Hot Hand Fallacy, and Domestic Bias– and their relationship with the personal characteristics of the investor, in particular with his EFE. We also analyze the effect of the financial crisis derived from Covid-19 on the aforementioned biases. This work is based on 109 questionnaires carried out in Galicia to individual investors, both real and potential, operating in the stock markets. The results confirm the existence of such biases, their relationship with some personal characteristics, a lower presence in individuals with greater financial knowledge and the intensification of Overconfidence and Herd Behavior during prolonged crises.

Keywords: Behavioral Finance; Biases; Economic and Financial Education; Investment decisions; Stock markets (search for similar items in EconPapers)
JEL-codes: D81 G41 (search for similar items in EconPapers)
Date: 2023
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