BETWEEN BIAS AND PERCEPTION: UNDERSTANDING INVESTMENT DECISIONS IN THE AGE OF ROBO ADVISORS

Abstract

Psychological biases have a significant impact on how investors process information perceive risks and assess investment opportunities. Through the mediating function of risk perception this study attempts to investigate the impact of confirmation bias conservatism bias overconfidence bias availability bias and loss aversion bias on investment decision making. Additionally the study looks into how risk perception and investment decision-making are influenced by the perceived usefulness of robo advisors. A self-administered questionnaire was used to gather data from 133 individual investors in Pakistan through purposive sampling. To test the suggested relationships the study used AMOS and SPSS for Structural Equation Modeling (SEM). Prior to assessing the structural relationships the measurement models validity and reliability were evaluated using Confirmatory Factor Analysis (CFA). While confirmation bias conservatism bias overconfidence bias and loss aversion bias did not exhibit significant effects availability bias was found to have a significant impact on risk perception. It was discovered that risk perception significantly improved investment decision-making underscoring the significance of risk perception in influencing investor behavior. The findings imply that investors who rely significantly on current and easily accessible information typically perceive higher levels of investment risk which subsequently influences their investment choices. By combining several cognitive and behavioral biases into a single framework and presenting data from an emerging economy this study adds to the body of literature on behavioral finance. By highlighting the significance of enhancing risk assessment procedures and lessening the impact of behavioral biases on investment decisions the findings provide useful implications for investors financial advisors fintech companies and policymakers