Behavioural biases in investment decision-making : a study on the impact of demographic factors on behavioural biases, within the Maltese context

Abstract

This study delves into behavioural biases in investment decisions of individual retail investors in Malta, and how they are related to several demographic variables. In light of the growing importance of behavioural finance to explain such irrational financial decisions, this study seeks to explore which demographic factors cause variations in the prominence and propensity of exhibiting behavioural biases. The biases that fall within this category include Anchoring, Cognitive Dissonance, Confirmation Bias, Conservatism, Framing, Herding, Home Bias, Loss Aversion, Overconfidence, Representativeness, and Self-Attribution. The quantitative nature of the study involves the use of a structured questionnaire, completed by 161 Maltese retail investors. General findings indicate significant influences of the demographic factors on several biases, including gender, age, marital and employment status, as well as investment experience and size. The specific findings confirm the fact that male investors show higher overconfidence, while the level of loss aversion and home bias among women is higher. Younger investors were more prone to anchoring bias and self-attribution bias, whereas more experienced investors demonstrated less susceptibility to these biases but retained overconfidence. Unmarried investors were more prone to anchoring bias, loss aversion, and self-attribution bias compared to their married counterparts. Public sector employees exhibited higher levels of loss aversion relative to those in the private sector. Additionally, those with less investment experience were more vulnerable to anchoring and home bias, while larger investment sizes were linked to increased susceptibility to anchoring and herding bias. Education level had limited influence on biases, with only anchoring bias approaching significance. The results show that demographic variables are very well linked to the behavioural biases, influencing investment decisions in diverse ways. From these findings, it appears that specialist financial education programs and investment advice tailored toward mitigating the adverse effects of these biases become imperative. The implication of this study is highly relevant for financial advisors and investors in highlighting the importance of considering demographic variables while formulating strategies to reduce irrational financial behaviour.