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Do investors suffer behavioral biases when deciding?
[Trpí investoři při svém rozhodování behaviorálními předsudky?]

Author

Listed:
  • Jitka Veselá
  • Lucie Neubauerová

Abstract

The concept of individual rationality had been crucial in financial theory. The proponents of behavioral finance argue that investors act irrationally, resulting in financial market distortions, which are not spontaneously corrected. This paper focuses on behavioral biases representing and describing the violation of fundamental axioms of rationality in the investor behavior. Using a questionnaire survey, this article examines the investor's six most common behavioral biases, their impact on the individual decision-making process and in the end formulates recommendations to eliminate their influence.

Suggested Citation

  • Jitka Veselá & Lucie Neubauerová, 2016. "Do investors suffer behavioral biases when deciding? [Trpí investoři při svém rozhodování behaviorálními předsudky?]," Český finanční a účetní časopis, Prague University of Economics and Business, vol. 2016(3), pages 73-87.
    • Handle: RePEc:prg:jnlcfu:v:2016:y:2016:i:3:id:481:p:73-87
    DOI: 10.18267/j.cfuc.481
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    References listed on IDEAS

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    1. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    2. French, Kenneth R & Poterba, James M, 1991. "Investor Diversification and International Equity Markets," American Economic Review, American Economic Association, vol. 81(2), pages 222-226, May.
    3. John R. Graham & Campbell R. Harvey & Hai Huang, 2009. "Investor Competence, Trading Frequency, and Home Bias," Management Science, INFORMS, vol. 55(7), pages 1094-1106, July.
    4. Brad M. Barber & Terrance Odean, 2001. "Boys will be Boys: Gender, Overconfidence, and Common Stock Investment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(1), pages 261-292.
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    More about this item

    Keywords

    Behavioral finance; Prospect Theory; Behavioral biases; Behaviorální finance; Prospect teorie; Behaviorální předsudky;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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