EXAMINING THE INFLUENCE OF BEHAVIOURAL BIASES ON INDIVIDUAL INVESTMENT DECISION-MAKING

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.