This document summarizes an annual seminar presentation given by Sushila, a doctoral research scholar. The presentation outlined her research on the impact of behavioural biases on individual equity investors in the National Capital Region of India. The presentation introduced behavioural finance concepts and highlighted key behavioral biases like anchoring bias, availability bias, and loss aversion. It described Sushila's literature review process, identification of 17 biases, and development of a conceptual model relating demographic factors and biases to investment decisions. The presentation concluded with details about Sushila's questionnaire to measure biases and a paper she published on applying behavioral finance to stock market investment decisions.

1. ANNUAL SEMINAR
DOCTORATE OF PHILOSOPHY
SUSHILA
Doctoral Research Scholar
Department of Commerce
BPSMV Khanpur Kalan
Sonepat
Dated : 6th Dec, 2019

2. Title of the study
Impact of Behavioural Biases on Investment
Decision of Individual Equity Investors of NCR
Research Supervisor
Dr. Bhavna Sharma

3. Outline of the Presentation
• Introduction
• Overview of Behavioural Finance
• Traditional finance Vs Behavioural finance
• Objectives of the study
• Concept of Behavioural biases
• Types of behavioural biases
• Research work done
• Identification of behavioural biases and conceptual model
development
• Summary of behavioural biases
• Questionnaire Development
• Paper published

4. Introduction
“One of the funny things about the
stock market is that every time
one person buys, another sells,
and both think they are astute.” -
William Feather

5. The way of thinking and feeling affects the
behaviour of individuals or our psychology affects
our decision making. This also works in the field
of finance. In 2002, Daniel Kahneman
(psychologist) was awarded the Nobel Memorial
Prize for economic sciences for his work in
applying psychological insights to economic
decision making, particularly in the areas of
judgement and decision making under
uncertainty. In 2017, Richard Thalar an American
economist also won Nobal prize in economics for
his contribution in behavioural economics.

6. Behavioural Finance
Behavioural finance, a sub-field of behavioural
economics, commonly defined as the application
of psychology to finance, is the study of how
cognitive and emotional factors affect economic
decisions, particularly how they affect rationality
in decision making. In other words Behavioural
finance is the study of the influence of
psychology on the behaviour of investors or
financial analysts. It also includes the subsequent
effects on the markets. It focuses on the fact that
investors are not always rational, have limits to
their self-control, and are influenced by their own
biases.

7. Behavioral Finance Micro versus
Behavioral Finance Macro
Behavioural Finance
Micro (BFMI) examines
behaviours or biases of
individual investors that
deviate them from
rationality.
Behavioral Finance
Macro (BFMA) detects
and describe anomalies
in the efficient market
hypothesis that
behavioural models
may explain.

8. Traditional finance Vs Behavioural finance
Traditional finance
• People are rational in the sense that when
they receive information they update their
beliefs correctly.
• People are guided only by utilitarian
wants.
• Expected utility theory describes how
people make decisions under risk.
• People design their portfolios according to
the mean – variance portfolio theory
which looks at expected returns and risk.
• Markets are efficient in the sense that
prices reflect intrinsic values.
Behavioural finance
• People are not fully rational. In forming
their beliefs and making their choices,
they are susceptible to cognitive and
emotional shortcuts and errors.
• In addition to utilitarian wants, people are
guided by emotional wants.
• Prospect theory describes better how
people make decisions under risk.
• People design their portfolios according to
the behavioural portfolio theory; where
by people’s wants extend beyond high
expected returns and low risk, to include
factors like social status and social
responsibility.
• Markets are characterised by inefficiencies

9. Objectives of the study
• To study the existence of behavioural biases
among individual equity investors of NCR.
• To analyse the differences in behavioural biases
of individual equity investors on the basis of
demographic profile.
• To analyse the impact of behavioural biases on
the investment decisions of individual equity
investors of NCR.
• To recommend the strategies to overcome from
behavioural biases while investing in stock
market.

10. Behavioural Biases
A bias is an illogical preference or irrational assumption. it is a
tendency to ignore any evidence that does not line up with
that assumption. It is a uniquely human foible, and since
investors are human they can also be affected by it. Any
decision making process requires appropriate use of mental
and financial resources to acquire and process information. In
an attempt to make quick and easy decisions, individuals tend
to deviate from rationality or they use mental or emotional
shortcuts to make quick decisions. These decisions are termed
biases. Michael M. Pompian (2012) in his book “Behavioural
finance and Wealth Management: How to investment
strategies that account for investor’ biases” explains 20 most
important behavioural biases. Behavioural biases given by
Michael M. Pompian are shown in Table 1.

11. Table1. Behavioural biases
Cognitive Biases Emotional Biases
Belief Perseverance
Biases
Information processing
biases
 Cognitive
Dissonance
 Anchoring and
Adjustment
 Loss Aversion
 Conservatism  Mental Accounting  Overconfidence
 Confirmation  Framing  Self-control
 Representativeness  Availability  Status Quo
 Illusion of Control  Self-attribution  Endowment
 Hindsight  Outcome  Regret Aversion
 Recency  Affinity.

12. Cognitive Biases
Belief perseverance
biases
Hold on to originalbeliefs;react
selectively to new information.
• Cognitive dissonance
• Conservation
• Confirmation
• Hindsight
• Illusion of control
• Representativeness
Information
processing biases
Process information
incorrectey ; memory
errors; faulty reasoning
• Anchoring
• Framing
• Mental accounting
• Availability

13. Emotional biases
Biases influenced by feelings and emotions;
avoid pain, produce pleasure
• Loss-aversion
• Overconfidence
• Self-control
• Endowment effect
• Regret-aversion

14. Research work done
In order to achieve the objectives of the study first of
all a comprehensive review of literature was done to
identify the behavioural biases of individual
investors. I collected research papers using various
databases such as Emerald, PROQUEST, Science
direct, JSTOR and Website of CFA (Chartered
Financial Analyst) of America. Review was searched
using keywords- Behavioural biases, investment
decision making, Individual investor behaviour,
behavioural factors, cognitive and emotional errors
in investing etc. Total 180 full text research papers
were collected. Out of them 100 were found suitable
related to the objectives of the study. Research
papers related to personality, risk tolerance level of
investors and behavioural biases of institutional
investors are not included in the review

15. Identification of behavioural biases
and conceptual model development
On the bases of review of literature 17
behavioural biases are identified and a
tentative conceptual model of the study
is developed as per the objectives of the
study.

16. Tentative Conceptual Framework
Demographic
Variables
• Gender
• Age
• Level of Education
• Marital status
• Income
• Profession
• Investment Experience
Behavioural Biases
• Confirmation Bias
• Representativeness Bias
• Illusion of control
• Anchoring bias
• Availability bias
• Familiarity bias
• Mental accounting
• Excessive Optimism
• Cognitive Dissonance
• Self-Attribution bias
• Overconfidence
• Loss Aversion
• Regret Aversion
• Ambiguity Aversion
• Risk Aversion
• Disposition effect
• Herding effect
Investment
Decisions

17. Confirmation bias
• It the tendency to interpret new evidence as
confirmation of one's existing beliefs or
theories. People tend to look for & notice
what confirms their beliefs & undervalue the
contradict views.

18. Representativeness bias
• Representativeness refers to the tendency to
make decision based on stereotypes, with
representativeness bias; the characteristics of
something we know are projected onto
something we do not know. In other words
representativeness bias deals investors to
wrongly conclude that good companies are
good investments and good past performer
will be good future performer.

19. Illusion of control
• The outcome of an investment decision
typically depends on a combination of luck &
skill. In general, investors have an inflated
view of how much control they have over
outcomes. This bias is called illusion of control
and leads to over- optimism.

20. Anchoring Bias
• It is tendency of investors to attached with a
information that might not be important or relevant.
It may also defined as a strong mental attachment to
a particular price.
• Anchoring bias is the tendency to use first
impressions to form perceptions. These initial
perceptions affect the later decisions. The individuals
with the anchoring bias tend to anchor the thoughts
to an irrelevant reference point. Values are assigned
to one option based on how attractive the option is
compared to the other options, instead of analysing
each option on its own.

21. Availability bias
• The availability bias is a rule of thumb, or
mental shortcut, that allows people to
estimate the probability of an outcome based
on how prevalent or familiar that outcome
appears in their lives.
• Overemphasis is given on the information that
is easily available.
• Example: investing in highly advertised
companies stocks.

22. Familiarity bias
• A mental shortcut that treats familiar things as
better than less familiar things (Home bias). In
other words, a familiarity bias can lead
investees to wrongly believe that familiar
companies tend to represent better
investment than less familiar companies.
Example: Investing in local companies stocks.

23. Mental accounting bias
• Mental accounting also known as “two pocket
theory” is a behavioural bias that occurs when
people put their money into separate
categories.
• Treat one sum of money different from other
depending upon source and the efforts taken
to acquire it.
• Investing some money very conservatively and
the rest in speculative stocks.

24. Excessive Optimism
• People tend to overestimate the probability of
positive events and underestimate the
probability of negative events happening to
them in the future.

25. Cognitive Dissonance
• Cognitive Dissonance results from the human
brain’s struggling with a conflict between
perception and reality. cognitive dissonance is
a conflict b/w beliefs or opinions & reality.
• To resolve this dissonance people may seek
only selective exposure, selective perception
& selective retention.

26. Self-Attribution bias
• Self-attribution bias refers to individuals'
tendency to attribute successes to personal
skills and failures to factors beyond their
control.

27. Overconfidence Bias
• Overconfidence causes investors to
overestimates their knowledge,
underestimates risks and exaggerates their
ability to control events. Overconfidence
stems partly from the illusion of knowledge.

28. Loss Aversion bias
• Pick one of the following options that you regard is more
attractive:
• Option A- Gain of Rs 800 with a probability of 50%.
• Option B- Sure gain of Rs 400.
• If you pick Option B then you have loss aversion bias.
• Pick one of the following options that you regard is more
attractive:
• Option A- Loss of Rs 800 with a probability of 50%.
• Option B- Sure loss of Rs 400
• If you pick option A ten you have loss aversion bias.
• Thus, Loss aversion refers to the tendency to loathe
realizing a loss to the extent that you avoid it even when
it is the better choice. It is because the pain of losing is
felt psychologically twice as powerful as the pleasure of
gaining.

29. Regret aversion
• Regret is the emotional pain a person
experiences when his decision turns sour.
Regret of commission is disappointment from
taking action, where as the regret of omission
is disappointment from not taking an action.
The concept of regret aversion is also relevant
in investing. As prospect theory explained that
investors sometimes avoid regret by holding
on to stocks that have become losers.

30. Ambiguity Aversion
• Ambiguity aversion refers to the bias when
people tend to lean towards known outcomes
over unknown ones. They want to avoid
uncertainty and choose what they are confident
of. It is applicable when a choice has to be made
between risky or ambiguous alternatives.
• In the context of investments and investors,
ambiguity aversion bias leads investors to
hesitate in situations that are ambiguous

31. Risk Aversion
• A risk averse investor is an investor who
prefers lower returns with known risks rather
than higher returns with unknown risks. In
other words, among various investments
giving the same return with different level of
risks, this investor always prefers the
alternative with least risk.

32. Disposition effect
• It relates to the tendency of investors to sell
assets that have increased in value, while
keeping assets that have dropped in value.
Investors have a propensity to sell winning
stocks early and holding loser too long.

33. Herding effect
• A Herd Effect exists in the financial market
when a group of investors ignores their own
information and instead only follows the
decisions of other investors.

34. Questionnaire Development
To achieve the objectives of the study
I developed a questionnaire on the bases of
review. The questionnaire is divided into two
sections. Section A consists the questions
related to demographic profile of equity
investors and section B consists the
statements developed on likert scale related
to behavioural biases and investment
decisions of equity investors.

35. Research Paper Published
“Implication of Behavioural Finance in
Investment Decision Making in Stock Market”
published in journal “Research Analysis and
Evaluation” UGC approved & accepted No.
41022, March issue, 2019.

36. Thank you