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Topic:
Impact of Regret Aversion and Availability bias on Investors Decision making and Factors
Affecting These two Biases.
1. Introduction:
Broader area of research:
In daily life an investor have to make different kinds of decisions. People have to confront
behavioral biases while making decisions (Bashir, Rasheed, Raftar, Fatima & Maqsood, 2013).
In research we check the impact of these two behavior finance theories Regret Aversion and
Availability bias on Investors Decision making.
Core Problem:
Behavioral finance discovers how investors in fact behave in financial surroundings while
making investment decisions other factors which can effect these theories regret aversion and
availability bias which can lead the investors to make irrational decisions (Ayopo, 2012).
Investors ignore the fundamentals and make mistakes due to their emotional, psychological and
behavioral factors and deviate from traditional models of finance (Qureshi, Rehman, Imran,
2012).
Explanation:
Regret is theory that says people anticipate regret if they make a wrong choice. Fear of regret can
play a large role in motivating to investor in next time decision making so they do right things in
future. In investing the fear of regret can make investors either risk averse or motivate them to
take greater risks. And other factors that can directly link to regret Investors responsibility the
more investors perceive themselves to be responsible for negative outcome then they feel more
regret and other factor which is expectation of feedback usually Investors expect that they can
better estimate the outcomes so rather to become the risk averse they become risk takers and
other factor which is Investors personality investors personality also contributes towards
decision making. Individual personality is also found to significantly influence feeling of regret
(Boninger, Gleicher, Strathman, 1994).
The availability bias is the mental shortcut which occurs when investors make judgments on first
hand information. factors that can directly link to this behavior uncertainty A doubtful situation
in which happening of an event is unknown by investors so Investor blindly trust every
information under the conditions of uncertainty and other factor which can effect that behavior
Information of investor Pakistani markets are not efficient as no appropriate and adequate
information about stocks, shared with all investors equitably. Decision duration is also directly
link to availability bias.