Volume 29, Issue 1
DOI: 10.24205/03276716.2020.175
PSYCHOLOGICAL COGNITION AND PREFERENCE SELECTION IN THE DECISION-MAKING PROCESS OF FINANCIAL INVESTMENT
Abstract
Since its introduction to economics, cognitive psychology has often been adopted to analyze risk-based judgement and decision making. This paper attempts to identify the relationship between cognitive bias and decision-making behavior in financial investment. Therefore, several variables were selected to investigate the changes of risk preferences among investors in various scenarios, and a structural equation model was established to study how the bias of investment behavior is affected by the cognitive bias of investors in decision-making. The results show that the bias of investment behavior is influenced by psychological cognition, preference selection and personal background of the decision-maker; among them, personal background has the weakest impact on behavior bias, and maintains a moderate correlation with decision-making psychology; in stock investment, the behavior bias mainly comes from price anchoring, misjudgment, and attributional bias. This research helps to control the investment risk, and promote the regulation of China’s financial market.
Keywords
Decision-Making Psychology, Structural Equation Model, Cognitive Bias, Behavior Bias.