Title: EMPIRICAL REVIEW OF THE INEVITABLE BIASES IN HUMANS INFLUENCING FINANCIAL DECISIONS
Authors:
Gitonga Celestine Gatabi, Michael Musyoka Muema, Oreko Nyakoi Godfrey And Ibrahim Tirimba Ondabu
Abstract:
This review study aimed at conducting a critical review of the various behavioral finance human biases and how they influence financial decisions. Initially the study identified 139 articles for inclusion but after a tentative scrutiny for relevance and omissions based on repetition of communicable content, the study was able to narrow down to only 51 articles and which formed the study report. The various biases that the study reviewed were the survivorship bias, selective perception bias, blind spot bias, availability heuristics bias, bandwagon bias, choice support bias, ostrich bias, outcome bias, and placebo bias. The study concludes that these biases results in investors overestimating their chances of success, underestimating the associated risks and thus making decisions based on their preconceived notions and which is dangerous for investing as possibly wrong decision may arise. The study recommends that it is important for investors to acknowledge the existence of these biases and as the first step towards acceptance and that once they take cognizance of their existence, they also need to be more careful by ensuring that they conduct proper analysis before jumping to conclusions. By being aware of these cognitive biases, investors can make more informed and rational decisions, and avoid the pitfalls of poor decision-making.
Keywords: Behavioral biases, decision making, financial markets.
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