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Does cognitive biased knowledge influence investor decisions? An empirical investigation using machine learning and artificial neural network

Does cognitive biased knowledge influence investor decisions? An empirical investigation using... Current research in the field of behavioural finance has attempted to discover behavioural biases and their characteristics in individual investors’ irrational decision-making. This study aims to find out how biases in information based on knowledge affect decisions about investments.Design/methodology/approachIn step one, through existing research and consultation with specialists, 13 relevant items covering major aspects of bias were determined. In the second step, multiple linear regression and artificial neural network were used to analyse the data of 337 retail investors.FindingsThe investment choice was heavily impacted by regret aversion, followed by loss aversion, overconfidence and the Barnum effect. It was observed that the Barnum effect has a statistically significant negative link with investing choices. The research also found that investors’ fear of making mistakes and their tendency to be too sure of themselves were the most significant factors in their decisions about where to put their money.Practical implicationsThis research contributes to the expansion of the knowledge base in behavioural finance theory by highlighting the significance of cognitive psychological traits in how leading investors end up making irrational decisions. Portfolio managers, financial institutions and investors in developing markets may all significantly benefit from the information offered.Originality/valueThis research is a one-of-a-kind study, as it analyses the emotional biases along with the cognitive biases of investor decision-making. Investor decisions generally consider the shadowy side of knowledge management. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png VINE Journal of Information and Knowledge Management Systems Emerald Publishing

Does cognitive biased knowledge influence investor decisions? An empirical investigation using machine learning and artificial neural network

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References (147)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
2059-5891
eISSN
2059-5905
DOI
10.1108/vjikms-08-2022-0253
Publisher site
See Article on Publisher Site

Abstract

Current research in the field of behavioural finance has attempted to discover behavioural biases and their characteristics in individual investors’ irrational decision-making. This study aims to find out how biases in information based on knowledge affect decisions about investments.Design/methodology/approachIn step one, through existing research and consultation with specialists, 13 relevant items covering major aspects of bias were determined. In the second step, multiple linear regression and artificial neural network were used to analyse the data of 337 retail investors.FindingsThe investment choice was heavily impacted by regret aversion, followed by loss aversion, overconfidence and the Barnum effect. It was observed that the Barnum effect has a statistically significant negative link with investing choices. The research also found that investors’ fear of making mistakes and their tendency to be too sure of themselves were the most significant factors in their decisions about where to put their money.Practical implicationsThis research contributes to the expansion of the knowledge base in behavioural finance theory by highlighting the significance of cognitive psychological traits in how leading investors end up making irrational decisions. Portfolio managers, financial institutions and investors in developing markets may all significantly benefit from the information offered.Originality/valueThis research is a one-of-a-kind study, as it analyses the emotional biases along with the cognitive biases of investor decision-making. Investor decisions generally consider the shadowy side of knowledge management.

Journal

VINE Journal of Information and Knowledge Management Systems – Emerald Publishing

Published: Jan 22, 2025

Keywords: Cognitive biases; Knowledge; Information; Investment decision; Regret aversion; Loss aversion; Barnum effect

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