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Prototyping to address cognitive gaps in Distributed Ledger investments

Author

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  • Wei, Tian
  • Wu, Han
  • Dowling, Michael

Abstract

The Distributed Ledger Technology (DLT)-based ecosystem enhances transparency and efficiency in financial transactions through decentralized verification. However, its complexity, market volatility, and evolving regulations create cognitive uncertainties among investors, leading to the potential for biased decisions. We contribute towards understanding the specific categorizing cognitive processes investors use based on textual machine learning from a dataset centred around 669 DLT companies. Our findings particularly show that investor decisions on new entrants tend to be based on a prototyping approach which means they are significantly influenced by the perceived unambiguity and financial reputation of the company's category. Overall, our study offers significant new data-driven understanding of investment behaviors in the DLT ecosystem.

Suggested Citation

  • Wei, Tian & Wu, Han & Dowling, Michael, 2024. "Prototyping to address cognitive gaps in Distributed Ledger investments," Finance Research Letters, Elsevier, vol. 70(C).
    • Handle: RePEc:eee:finlet:v:70:y:2024:i:c:s1544612324013382
    DOI: 10.1016/j.frl.2024.106309
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    More about this item

    Keywords

    DLT; Distributed ledger; Categorization; Cognitive bias; Investment; Machine learning;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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