engleski

Breaking the myth about rational investor: Investors’ susceptibility to heuristical and biased reasoning

The theory of rational investors has empirically proven not to be an accurate model for describing how investors in reality behave. However, there is a great number of finance theorists and orthodox economists that advocate the theory of homo economicus. In this paper, we take a closer look at susceptibility of investors to heuristics and biases in general and look at some individual differences with respect to committing to these biases. Individual differences include educational background, professional experience, and years of investing experience. We found that susceptiveness to heuristics and biases is present in the majority of hypothetical scenarios. With regard to individual differences, we found that educational background can play a role in susceptiveness to heuristics and biases.

behavioral finance ; heuristics ; biases ; investors’ rationality

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