The study of behavioural finance attempts to understand the psychology behind investing. Through empirical research, behavioural finance seeks to provide evidence that market participants act irrationally despite their best attempt to make wealth maximising decisions. Behavioural finance covers many cognitive and behavioural biases, but this research extensively focuses on only three key biases: overconfidence, loss aversion and anchoring.
The main purpose of this research is to examine the extent that overconfidence, loss aversion and anchoring have on an individual UK investor’s decision making.
The research adopted a deductive strategy to collect quantitative data. To collect primary data for analysis, an online questionnaire containing 13 questions was distributed to UK investors who are members of online forums that are dedicated to UK investing and personal finance. A total sample size of 220 was obtained which both improved the accuracy and the representativeness of the findings.
The data analysis revealed that anchoring has the highest level of significance and relevance on a UK investor’s decision making but overconfidence and loss aversion are still prevalent biases of UK investors investing into the London Stock Exchange.