A Literature Review on the Influence of Availability Bias and Overconfidence Bias on Investor Decisions

Authors

  • Fitriana Rahmawati Faculty of Economics and Business, University of Bengkulu
  • Fitri Santi Faculty of Economics and Business, University of Bengkulu

DOI:

https://doi.org/10.55927/eajmr.v2i12.6896

Keywords:

Availability Bias, Overconfidence Bias, Investment Decisions, Cognitive Biases

Abstract

This research examines the impact of Availability Bias and Overconfidence Bias on investment decisions. Utilizing a literature review approach and VOSviewer analysis, this study explores how these biases affect investor decision-making processes and potential mitigation strategies. The objective is to highlight the significance of understanding and mitigating these biases in achieving more rational investment decisions. The findings underscore the potential negative effects of both biases, leading to overconfident and less rational investment decisions. Awareness of their interplay is crucial, as they reinforce each other's negative effects on investment decision-making. Overcoming these cognitive biases is essential for more effective investment decision-making. This research contributes insights into mitigating biases, aiding in a more balanced and rational approach to investment decision-making.

References

Adil, M., Singh, Y., & Ansari, M. S. (2022). How financial literacy moderate the association between behaviour biases and investment decision? Asian Journal of Accounting Research, 7(1), 17–30. https://doi.org/10.1108/AJAR-09-2020-0086

Ahmad, M., & Shah, S. Z. A. (2022). Overconfidence heuristic-driven bias in investment decision-making and performance: mediating effects of risk perception and moderating effects of financial literacy. Journal of Economic and Administrative Sciences, 38(1), 60–90. https://doi.org/10.1108/jeas-07-2020-0116

Aljughaiman, A. A., & Chebbi, K. E. (2022). Do Investor Overconfidence and Loss Aversion Drive Saudi Firm Market Performance? The Moderating Effect of Corporate Governance. Sustainability (Switzerland), 14(16). https://doi.org/10.3390/su141610072

Alp Coşkun, E., Kahyaoglu, H., & Lau, C. K. M. (2023). Which return regime induces overconfidence behavior? Artificial intelligence and a nonlinear approach. Financial Innovation, 9(1). https://doi.org/10.1186/s40854-022-00446-2

Alsabban, S., & Alarfaj, O. (2020). an Empirical Analysis of Behavioral Finance in the Saudi Stock Market: Evidence of Overconfidence Behavior. International Journal of Economics and Financial Issues, 10(1), 73–86. https://doi.org/10.32479/ijefi.8920

Amalia Yunia Rahmawati. (2020). Demographic Factors and Behavioral Biases of Individual Investors in Nepalese Capital Market Manish. Journal of Business and Economics, 6(July), 1–23.

Bihari, A., Dash, M., Kar, S. K., Muduli, K., Kumar, A., & Luthra, S. (2022). Exploring behavioural bias affecting investment decision-making: a network cluster based conceptual analysis for future research. International Journal of Industrial Engineering and Operations Management, 4(1/2), 19–43. https://doi.org/10.1108/ijieom-08-2022-0033

Bouteska, A., & Regaieg, B. (2020). Loss aversion, overconfidence of investors and their impact on market performance evidence from the US stock markets. Journal of Economics, Finance and Administrative Science, 25(50), 451–478. https://doi.org/10.1108/JEFAS-07-2017-0081

Febri, W., Sudirman, R., Alif, M. I., & Pratiwi, A. (2023). DOES HEURISTIC BIAS MATTER FOR LONG AND SHORT-TERM INVESTMENT DECISION-MAKING DURING THE COVID-19 PANDEMIC ? Journal of Indonesian Economy and Business, 38(3), 254–269.

Imran Gulzar, T. (2023). The Influence of Behavioral Biases on Investment Decisions; Moderating Role of Emotional Stability. Journal of Development and Social Sciences, 4(II). https://doi.org/10.47205/jdss.2023(4-ii)61

Isidore R, R., & Christie, P. (2019). The relationship between the income and behavioural biases. Journal of Economics, Finance and Administrative Science, 24(47), 127–144. https://doi.org/10.1108/JEFAS-10-2018-0111

Jain, J., Walia, N., & Gupta, S. (2020). Evaluation of behavioral biases affecting investment decision making of individual equity investors by fuzzy analytic hierarchy process. Review of Behavioral Finance, 12(3), 297–314. https://doi.org/10.1108/RBF-03-2019-0044

Jamshidi, N., Ghalibaf Asl, H., & Nejad, M. E. (2019). Studying the Overconfidence and Representativeness Biases of Individual Investors in Tehran Stock Exchange. Financial Research Journal, 21(2), 143–164. https://doi.org/10.22059/frj.2019.266852.1006745

Jarrar, A. (2021). making : Evidence from Jordanian banks ” The association between cognitive biases and the quality of strategic decision making : Evidence from Jordanian banks. Banks and Bank Systems. https://doi.org/10.21511/bbs.16(2).2021.01

Joffre, R., & Pires, A. (2020). A Review of Overconfidence in Behavioral Finance. International Journal of Science and Business, 4750, 71–78. https://doi.org/10.5281/zenodo.3818346

Kartini, K., & Nahda, K. (2021). Behavioral Biases on Investment Decision : A Case Study in Indonesia. Journal of Asian Finance, Economics and Business, 8(3), 1231–1240. https://doi.org/10.13106/jafeb.2021.vol8.no3.1231

Kasoga, P. S. (2021). Heuristic biases and investment decisions: multiple mediation mechanisms of risk tolerance and financial literacy—a survey at the Tanzania stock market. Journal of Money and Business, 1(2), 102–116. https://doi.org/10.1108/jmb-10-2021-0037

Koc, I. O. (2021). Investigating the Demographic Characteristics of Institutional Investors Affecting Representativeness, Conservatism and Overconfidence Biases in their Individual Investments. Journal of Accounting, Business and Finance Research, 13(1), 15. https://doi.org/10.20448/2002.131.15.25

Kunjal, D., & Peerbhai, F. (2021). Investor overconfidence in the South African exchange traded fund market. Cogent Economics and Finance, 9(1). https://doi.org/10.1080/23322039.2021.1978190

Kurniawati, D., & Sutrisno, S. (2019). the Benchmark of Investor Decisions To Invest in the Initial Public Offering (Ipo). Riset Akuntansi Dan Keuangan Indonesia, 4(2), 166–176. https://doi.org/10.23917/reaksi.v4i2.8543

Lee, C. C., Lee, H. Y., Yeh, W. C., & Yu, Z. (2022). the Impacts of Task Complexity, Overconfidence, Confirmation Bias, Customer Influence, and Anchoring on Variations in Real Estate Valuations. International Journal of Strategic Property Management, 26(2), 141–155. https://doi.org/10.3846/ijspm.2022.16704

Libório, M. P., Martins, C. A. P. S., Laudares, S., & Ekel, P. I. (2023). MethodsX Method of preparing an international and national literature review for novice researchers. 10(January). https://doi.org/10.1016/j.mex.2023.102165

Loris, R. P., & Jayanto, P. Y. (2021). the Effect of Representativeness, Availability, Anchoring, Risk Perception, and Herding on Investment Decisions Syariah Investors. Jurnal Akuntansi, 11(1), 81–92. https://doi.org/10.33369/j.akuntansi.11.1.81-92

Madaan, G., & Singh, S. (2019). An Analysis of Behavioral Biases in Investment Decision-Making. International Journal of Financial Research, 10(4), 55–67. https://doi.org/10.5430/ijfr.v10n4p55

Moradi, M., Mostafaei, Z., & Meshki, M. (2013). A study on investors’ personality characteristics and behavioral biases: Conservatism bias and Availability Bias in the Tehran Stock Exchange. Management Science Letters, 3(4), 1191–1196. https://doi.org/10.5267/j.msl.2013.03.003

Pikulina, E., Renneboog, L., & Tobler, P. N. (2017). Overconfidence and investment: An experimental approach. Journal of Corporate Finance, 43, 175–192. https://doi.org/10.1016/j.jcorpfin.2017.01.002

Rajasekharan Ganesh, Sampath Thiyagarajan, Gopala Vasudevan, & G. Naresh. (2023). Investors’ Overconfidence in the Stock Market. Copernican Journal of Finance & Accounting, 11(4), 107–123. https://doi.org/10.12775/cjfa.2022.021

Salman, M., Khan, B., Khan, S. Z., & Khan, R. U. (2021). The impact of heuristic Availability Bias on investment decision-making: Moderated mediation model. Business Strategy and Development, 4(3), 246–257. https://doi.org/10.1002/bsd2.148

Schulz, B. (2023). Biases Affect German Investors. ACTA VŠFS, 17, 39–59.

Shantha Gowri, B., & Ram, V. S. (2019). Does Availability Bias have influence on FMCG investors? An empirical study on cognitive dissonance, rational behaviour and mental accounting bias. International Journal of Financial Research, 10(4), 68–83. https://doi.org/10.5430/ijfr.v10n4p68

Sudirman, W. F. R., Winario, M., Priyatno, A. M., & Assyifa, Z. (2023). Risk Tolerance: Heuristic Bias Towards Investment Decision Making. Jurnal Manajemen Teori Dan Terapan | Journal of Theory and Applied Management, 16(2), 266–279. https://doi.org/10.20473/jmtt.v16i2.47471

Tversky, A., & Kahneman, D. (1974). Judgment under Uncertainty: Heuristics and Biases Biases in judgments reveal some heuristics of thinking under uncertainty. Science, 185(4157), 1124–1131.

ul Abdin, S. Z., Qureshi, F., Iqbal, J., & Sultana, S. (2022a). Overconfidence Bias and investment performance: A mediating effect of risk propensity. Borsa Istanbul Review, 22(4), 780–793. https://doi.org/10.1016/j.bir.2022.03.001

Wenning, PhD, DBA, P. S. (2023). Overcoming home- and Overconfidence Bias: an effective guideline for private investors based on meta-analysis. Journal of Economics and Public Finance, 9(1), p72. https://doi.org/10.22158/jepf.v9n1p72

X. H. Bao, H., & Li, S. H. (2020). Investor Overconfidence and Trading Activity in the Asia Pacific REIT Markets. Journal of Risk and Financial Management, 13(10). https://doi.org/10.3390/jrfm13100232

Downloads

Published

2023-12-30

How to Cite

Rahmawati, F., & Santi, F. (2023). A Literature Review on the Influence of Availability Bias and Overconfidence Bias on Investor Decisions. East Asian Journal of Multidisciplinary Research, 2(12), 4961–4976. https://doi.org/10.55927/eajmr.v2i12.6896

Issue

Vol. 2 No. 12 (2023): December 2023

Section

Articles

License

Copyright (c) 2023 Fitriana Rahmawati, Fitri Santi

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.