Impact of Behavioral Biases on Investment Decision in UK Equity Market

Impact of Behavioural
Biases on Investment
Decision Evidences from
UK equity market

Contents
Contents...........................................................................................................................................2
CHAPTER 1: INTRODUCTION....................................................................................................1
Background of the research.........................................................................................................1
Organisational Background.........................................................................................................2
Purpose of the research................................................................................................................3
Aims and Objectives....................................................................................................................3
Research Questions......................................................................................................................3
REFERENCES................................................................................................................................4

CHAPTER 1: INTRODUCTION
Background of the research
A normal human behaviour is rational while making any economic decision. When he is
purchasing any investment there are various factor that play important role while making any
decision. Investments are the asset of an individual which one purchase from his savings, surplus
profit or any other extra income. Investments can be of short term or a longer term depending on
the intention behind investing. A most important aspect that influence the choice for investment
is behavioural biases. Behavioural biases have so much influence and judgement on an
investment purchasing that it decides the sum of amount to be spent, time period and all other
aspects (Bolomope and et.al., 2020).
This knowingly and unknowingly can adversely impact the financial decision of an
organisation or an individual. Some of the common behavioural biases is Optimism/Confidence
Bias- This is a strong establishment where an individual assumes that his decision is accurate and
future for the investments is going to be very much profitable. But in reality it is not so, the
accuracy of the individual is not that true as he supposed to be. The power of optimism is such
that it leads the investor to overestimate growth and return from a particular investment. This
generally takes place when an investor has not done critical study of the investment. In order to
rectify this biases, the investor should take outsiders or experts view on a project or an
investment.
Anchoring Bias this is the attitude of an investor to believe on a news/ information and get
stick to it. While making choice for investment this information is only considered by the buyer.
This makes the investor specific towards an information and control the decision making for an
investment. In order to overcome this the buyer should continue his research and business
environment analysis so that he gets wide range of information and learn new insight regarding
the investment. Loss aversion bias is the tendency of investor to remember losses from past and
focuses on avoiding them. He makes less risky decisions so that he do not suffer loss because of
which he earns less. Herd mentality is the nature of buyer to make decisions according to the
majority populations decisions (Haritha and Uchil, 2020). This individual does what other are
doing, that is following what the group is doing. They have belief that the following other help
them taking more rational decision. Managers often go for herd mentality when they believe that
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