Exploring the human factor in decision making: Anchoring bias and investor behavior

Abstract

The objective of this study was to explore how anchoring affects the dynamics of investor decision making with regard to mutual funds and how this bias differs amongst genders and level of financial knowledge. The study adds to the body of knowledge on the influences of behavioural biases in the sub-region to make investors aware of their biases in order to minimise the influence of these biases on their investment decisions. An experimental research design was adopted to uncover the relationship between the variables under study; this involved the use of a questionnaire with an embedded experiment. Data obtained from the study were analysed using Pearson’s chi-square test and two-way analysis of variance. The objectives were to investigate the extent to which Ghanaian investors are affected by the anchoring bias as well as explore the degree to which differences in gender and expertise affect the levels of influence from the anchoring bias. The results showed an association between participants’ susceptibility to anchor with both gender and the level of financial knowledge of participants. However, this result is not statistically significant and thus cannot be generalized to the entire population. Females were observed to be more likely to anchor than their male counterpart. Also, a higher level of financial knowledge did not help to reduce the possibility of anchoring but rather increased it.