Meta-Analysis of Behavioural Biases Influencing Investment Decisions of Financially Literate Investors
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Abstract
Objective: The study aims to investigate the key cognitive and emotional biases influencing the investment decisions of financially literate investors. It focuses on major cognitive biases like overconfidence, anchoring, availability heuristics, representativeness, and confirmation bias, alongside emotional biases such as the endowment effect, regret aversion, loss aversion, FOMO (fear of missing out), and herd behavior.
Methods: A systematic literature review (SLR) and meta-analysis were conducted using peer-reviewed academic articles. Effect sizes were calculated to determine the magnitude of the biases, while heterogeneity across studies was analyzed using the I² statistic. Publication bias was assessed using funnel plots and Egger’s test.
Results: The meta-analysis revealed moderate effect sizes for both cognitive (0.37) and emotional (0.39) biases. Overconfidence, herd behavior and biases stemming from the influence of technological factors were found to be dominant biases. The heterogeneity was moderate, with I² values of 62% for cognitive biases and 58% for emotional biases. No significant publication bias was detected, and sensitivity analysis confirmed the stability of the results.
Conclusion: Financial literacy does not shield investors from cognitive and emotional biases, as even knowledgeable investors fall prey to these influences. The study highlights the need for strategies to reduce these biases to improve investment performance.
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