Leading Behavioral Characteristics and Investors’ Decisions: An Experimental Approach

Individual investor behavior is subject to many factors including risk attitude, behavioral heuristics, cognitive biases, herding, etc. The aim of this study was to investigate the impacts of selected behavioral factors of an investor as a leader in making individual investment decisions. To achieve this aim, we conducted an economic experiment which allowed us to observe individual behavior of subjects on an artificial stock exchange. In this study, we investigated two groups of factors, applying: (1) psychological scales assessing two independent thinking styles: rational and experiential which may affect investors’ decisions and (2) measures of subjective self-assessment of investors’ characteristics, namely their expected emotional response to losses and risk attitude. We claim that subjects behave according to how they perceive themselves and how they would like to be perceived. Therefore, they are subject to confirmation bias. Analyzing data from an economic experiment, we found that propensity to invest in the case of male subjects was influenced by the following six factors: experience in investing, need for cognition, faith in intuition, risk attitude, age and the time of decision making. Higher need for cognition refrains some investors from investing when they regard the amount of possessed information as insufficient. Faith in intuition increases the propensity to invest in the case of seemingly positive financial results of the analyzed firm. However, both results concerning rational and affective thinking styles hold true only for male subjects. In the case of female subjects, no significant impact of the need for cognition and of faith in intuition was reported. Propensity to invest in the case of female subjects was influenced only by two factors: expected emotional response to losses and trust in strangers. Curiously, these are the remaining two factors that did not affect male subjects’ investment decisions.