This paper examines the effect of cognitive biases on investment decisions in Okara, Pakistan. It analyzes the impact of five biases: availability, anchoring, overconfidence, herd instinct, and regret aversion. The study finds availability, overconfidence, and herd instinct biases positively correlate with irrational investment decisions, while anchoring and regret aversion do not. Of the biases, overconfidence has the strongest impact. The paper concludes investors and policymakers should address cognitive biases through de-biasing methods to improve investment decision making.

1. Group Members:
Zaiena Naeem (GR) (5075)
Muhammad Talha (CR) (5150)
Noor Zafar (5011)
Hafiz Muhammad Ahmad Anees (5091)
Muhammad Usman Ghani (5122)
Submitted to: Dr. Zeeshan Anwar
BBA 5th
Semester
Evening Section A
University of Okara
7th
December, 2022

2. Title No. 1:
 Effect of Cognitive Biases on Investment Decision
Making: A Case in Okara, Pakistan.
Justification:
As human beings, we all have cognitive biases. A cognitive bias is an error in
thinking that occurs when we are processing and interpreting information in the
world around us. It affects the decisions and judgments we make. Oftentimes, they
are a result of the brain’s attempt to simplify information processing. Our brain
creates rules of thumb to help us make sense of the world and reach decisions with
relative speed. Unfortunately, the process of speeding up the decision process can
sometimes lead to errors. When it comes to investing, cognitive biases can make
our investing behavior irrational. This can lead us to make undesirable financial or
investment choices because we draw incorrect conclusions based on some of the
thinking errors our brain is making to arrive at those decisions. To be a successful
investor over the long term, we need to understand, and hopefully overcome, some
common cognitive biases (Confirmation bias occurs when you only seek out
information that tells you what you want to hear, Anchoring bias causes us to rely
too heavily on the first piece of information we are given about a topic, Loss
aversion can also lead to unnecessary risk avoidance, Overconfidence bias is the
tendency for a person to overestimate their abilities). Doing so can lead to better
decision making, which may help lower risk and improve investment returns over
time.

3. Effect of Cognitive Biases on Investment Decision
Making: A Case in Okara, Pakistan.
Authors: Zaiena Naeem, Noor Zafar, M Talha, Hafiz Muhammad Ahmad Anees, M Usman
Ghani.
Abstract:Background: Behavioral finance deals with the study of psychological
influences on investors and financial markets. Investors commonly perform
investment analysis through fundamental and technical analysis. The behavior of
the investment market originates from the principles of psychological decision
making that explains the reasons behind buying and selling stocks.
Objectives: This paper aims to examine the effect of cognitive biases on
investment decisions in Okara Pakistan. The effect of five cognitive biases, such as
availability, anchoring, overconfidence, herd instinct, and regret aversion, is
measured on rational investment decision-making.
Methods: This study is based on primary data sources using non-probability
(convenience method) sampling techniques. There are seven brokerage houses in
Okara, and researchers selected 179 respondents involved in stock market
investment. Both descriptive and inferential analyses were made to analyze the
data.
Results: The study discovers a link between irrationality in financial decision
making and availability, overconfidence, and herd instinct biases, but anchoring
and regret aversion biases had no effect on irrational investment decisions.
However, though all the biases have a positive relationship with an irrational
investment decision, overconfidence bias has the highest impact. Regret aversion

4. bias has the least impact on investment decisions in comparison to the other four
biases.
Conclusion: The investors and the policymakers should focus on finding the
cognitive biases and various de-biasing methods to eradicate those biases
throughout investment decision-making. The findings of this study have a number
of implications for investors, brokers, and governments who aim to stimulate stock
market investment.
Keywords: Behavioral finance, cognitive biases, financial markets, investment
decisions
 Dhungana, B. R., Bhandari, S., Ojha, D., & Sharma, L. K. (2022). Effect of Cognitive Biases on
Investment Decision Making: A Case of Pokhara Valley, Nepal. Quest Journal of Management
and Social Sciences, 4(1), 71-84.


5. The paper examines the direct and indirect effects (via investors’ risk perception) of heuristic biases on
investors’ irrational behavior in decision-making. The study also investigates the moderating effect of
investors’ extraversion on both the direct and the indirect associations between heuristic biases and
irrational decision-making. Based on survey data collected from 247 investors registered in various
brokerage houses in Pakistan and the analyses (mediation and moderation) performed using the Process
Macro technique (proposed by Hayes, 2017) in SPSS, the results of this study reveal that heuristic biases
positively affect investors’ irrational decision-making both directly and indirectly via risk perception. The
results reveal that extraversion moderates both direct and indirect associations between heuristic biases
and investors’ irrational behavior in decision-making. Our findings carry useful practical implications for
organizations’ policymakers