Decoding Investor’s Irrationality: A Fuzzy AHP Exploration of Behavioural Biases

What the paper says

In contrast to traditional financial theories, which posit rational investors and efficient markets, real-world investors are subject to various behavioural biases. This study seeks to identify, classify and rank the behavioural biases influencing individual stock investor’s investing decisions. Expert reviews and an exhaustive literature study were the techniques used here to determine and classify the significant behavioural biases impacting investment choices in the stock market. Subsequently, these biases are prioritized utilizing the Delphi technique in conjunction with the fuzzy analytic hierarchy process (FAHP), a multi-criteria decision-making (MCDM) technique. This research makes a unique addition by identifying and classifying 14 significant behavioural biases influencing equity investment decisions into three main behavioural bias categories, namely heuristic biases, prospect and framing biases and social biases. The prospect and framing biases category has been identified as the foremost behavioural bias category followed by social biases and heuristic biases in that order. Regret aversion, authority bias, loss aversion, confirmation bias and mental accounting have secured the top 5 priority ranks among the 14 identified behavioural biases in that order. This study contributes to the implications of behavioural biases and thereby provides insights in empowering stock investors to make thoughtful investing choices.