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FINAL TOPIC FOR ARTICLE.docx

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  1. 1. Group Members: Zaiena Naeem (GR) (5075) Muhammad Talha (CR) (5150) Noor Zafar (5011) Hafiz Muhammad Ahmad Anees (5091) Muhammad Usman Ghani (5122) Submitted to: Dr. Zeeshan Anwar BBA 5th Semester Evening Section A University of Okara 7th December, 2022
  2. 2. Title No. 1:  Effect of Cognitive Biases on Investment Decision Making: A Case in Okara, Pakistan. Justification: As human beings, we all have cognitive biases. A cognitive bias is an error in thinking that occurs when we are processing and interpreting information in the world around us. It affects the decisions and judgments we make. Oftentimes, they are a result of the brain’s attempt to simplify information processing. Our brain creates rules of thumb to help us make sense of the world and reach decisions with relative speed. Unfortunately, the process of speeding up the decision process can sometimes lead to errors. When it comes to investing, cognitive biases can make our investing behavior irrational. This can lead us to make undesirable financial or investment choices because we draw incorrect conclusions based on some of the thinking errors our brain is making to arrive at those decisions. To be a successful investor over the long term, we need to understand, and hopefully overcome, some common cognitive biases (Confirmation bias occurs when you only seek out information that tells you what you want to hear, Anchoring bias causes us to rely too heavily on the first piece of information we are given about a topic, Loss aversion can also lead to unnecessary risk avoidance, Overconfidence bias is the tendency for a person to overestimate their abilities). Doing so can lead to better decision making, which may help lower risk and improve investment returns over time.
  3. 3. Effect of Cognitive Biases on Investment Decision Making: A Case in Okara, Pakistan. Authors: Zaiena Naeem, Noor Zafar, M Talha, Hafiz Muhammad Ahmad Anees, M Usman Ghani. Abstract:Background: Behavioral finance deals with the study of psychological influences on investors and financial markets. Investors commonly perform investment analysis through fundamental and technical analysis. The behavior of the investment market originates from the principles of psychological decision making that explains the reasons behind buying and selling stocks. Objectives: This paper aims to examine the effect of cognitive biases on investment decisions in Okara Pakistan. The effect of five cognitive biases, such as availability, anchoring, overconfidence, herd instinct, and regret aversion, is measured on rational investment decision-making. Methods: This study is based on primary data sources using non-probability (convenience method) sampling techniques. There are seven brokerage houses in Okara, and researchers selected 179 respondents involved in stock market investment. Both descriptive and inferential analyses were made to analyze the data. Results: The study discovers a link between irrationality in financial decision making and availability, overconfidence, and herd instinct biases, but anchoring and regret aversion biases had no effect on irrational investment decisions. However, though all the biases have a positive relationship with an irrational investment decision, overconfidence bias has the highest impact. Regret aversion
  4. 4. bias has the least impact on investment decisions in comparison to the other four biases. Conclusion: The investors and the policymakers should focus on finding the cognitive biases and various de-biasing methods to eradicate those biases throughout investment decision-making. The findings of this study have a number of implications for investors, brokers, and governments who aim to stimulate stock market investment. Keywords: Behavioral finance, cognitive biases, financial markets, investment decisions  Dhungana, B. R., Bhandari, S., Ojha, D., & Sharma, L. K. (2022). Effect of Cognitive Biases on Investment Decision Making: A Case of Pokhara Valley, Nepal. Quest Journal of Management and Social Sciences, 4(1), 71-84. 
  5. 5. The paper examines the direct and indirect effects (via investors’ risk perception) of heuristic biases on investors’ irrational behavior in decision-making. The study also investigates the moderating effect of investors’ extraversion on both the direct and the indirect associations between heuristic biases and irrational decision-making. Based on survey data collected from 247 investors registered in various brokerage houses in Pakistan and the analyses (mediation and moderation) performed using the Process Macro technique (proposed by Hayes, 2017) in SPSS, the results of this study reveal that heuristic biases positively affect investors’ irrational decision-making both directly and indirectly via risk perception. The results reveal that extraversion moderates both direct and indirect associations between heuristic biases and investors’ irrational behavior in decision-making. Our findings carry useful practical implications for organizations’ policymakers

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