Abstract:
Behavioral biases play a crucial role in shaping investment decision-making, yet their
specific impact in emerging markets, such as Tanzania, remains underexplored. This
study bridges that gap by investigating how overconfidence, availability, and self attribution biases influence individual investment decisions among Dar es Salaam
Stock Exchange (DSE) investors. Understanding these biases is critical as they
undermine rational decision-making, leading to suboptimal investment outcomes and
market inefficiencies. The study employed a cross-sectional survey design, gathering
data from 344 investors at the DSE. Using structural equation modeling (SEM) for
data analysis, the findings revealed that all three biases significantly affect investment
decisions. Overconfidence bias negatively impacts rational decision-making by
causing investors to overestimate their knowledge and abilities, often leading to
excessive trading and poor portfolio performance. Availability bias influenced risk
perception by overemphasizing recent or readily available information, resulting in
skewed judgments and potentially risky investment behavior. Similarly, self attribution bias, where investors credit personal skill for successes while blaming
external factors for failures, reinforced overconfidence and risk-taking tendencies,
further distorting rational investment decisions. The study's findings highlight the
detrimental effects of these biases on investor behavior and underscore the need for
targeted financial literacy and behavioral training programs. These interventions can
help investors recognize and mitigate the influence of biases, promoting more
informed and rational decision-making processes. Policymakers and financial market
regulators are encouraged to develop educational initiatives that address these
cognitive and emotional pitfalls. Such efforts could enhance market stability, improve
investor confidence, and contribute to the growth and efficiency of emerging financial
markets like Tanzania. The research emphasizes the broader implications for
behavioral finance, calling for further studies to explore similar biases across different
cultural and economic contexts.
