Behavioral Finance: The Impact Of Socio-Demographic Factors On Investment Biases

Abstract

This study examines the impact of sociodemographic factors (age, gender, occupation, and investment experience) on investment biases (overconfidence, risk aversion, and anchoring bias) and their mediating role in investment decisions among investors in Karachi, Pakistan. A quantitative research approach was employed, utilizing a structured questionnaire to collect data from 213 respondents across various industries. Statistical analysis, including the Kruskal-Wallis H test, Mann-Whitney U test, Ordinal Regression, and Mediation Analysis using PROCESS Macro, was conducted to identify significant relationships between sociodemographic factors, behavioral biases, and investment decisions. The results reveal that younger investors exhibit higher overconfidence, whereas older investors display a stronger anchoring bias. Men tend to be more overconfident, while women rely more on past reference points, increasing their anchoring bias. Investment experience significantly influences risk aversion and anchoring bias but does not impact overconfidence. Mediation analysis confirms that overconfidence and anchoring bias significantly mediate investment decisions, whereas risk aversion does not. The findings highlight the need for targeted financial literacy programs to mitigate behavioral biases. Policymakers and financial advisors can use these insights to design interventions promoting rational investment decision-making. This study contributes to behavioral finance by providing empirical evidence on how sociodemographic factors shape investment biases and decision-making, particularly in an emerging market context.

Keywords-Behavioral finance, investment biases, overconfidence, risk aversion, anchoring bias, sociodemographic factors, investment decisions.