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BEHAVIOURAL BIASES IN
FINANCIAL DECISION MAKING


NAME : POOJA GUPTA
REGISTRATION NO. : 201202417






NAME: POOJA GUPTA
REGISTRATION NO.: 201202417
SYMBIOSIS CENTRE OF DISTANCE
LEARNING
ACADEMIC YEAR: 2012-2014
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DECLARATION

This is to declare that I, Pooja Gupta, have carried out this project work myself in partial
fulfilment of the Post-Graduation Diploma in Business Administration Program (Finance
Management) of SCDL.
The work is original, has not been copied from anywhere else and not been submitted to any
other University/Institute for an award of any degree/diploma.


Date : Signature :
Place : Delhi Name :Pooja Gupta

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CHAPTERISATION
S.No. Chapters Page No.
1. Introduction
2. Objective
3. Hypothesis
4. Research and Methodology
5. Analysis
6. Conclusion
7. Limitations of Study
8. Annexure
Bibliography
Questionnaire
List of Figures
List of Charts
List of Tables


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BEHAVIOURAL
BIASES IN
FINANCIAL
DECISION
MAKING


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CHAPTER-1
INTRODUCTION







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INTRODUCTION
NEED & RATIONALE:-
The purpose of this study is to research Behavioural biases in financial decision making. How
different behavioural biases affect the investors financial decision making. With all the
studies done in this area, research findings have shown the following characteristics.
Rational decision making is coupled with a structured or reasonable thought process. The
choice to decide rationally can help the decision maker by making the knowledge involved
choice open and specific. The theory of rational choice starts with considering a set of
alternatives faced by the decision maker. Most analysts only consider a restricted set of
alternatives that contain the important or interesting difference among the alternatives. Mostly,
this is necessary because the full range of possible actions exceeds comprehension. Sanglier,
Metal (1994) show that if different investors receive the same information they will have their
own interpretation of this information. These various interpretations will lead to different
perception of the signals and therefore create differentiated behaviours. The established
various behaviours will influence the financial markets through the decision making of these
investors. Because they interpret the received information on their own way, each investor will
make another decision. Therefore behavioural factors are important in financial markets
because they influence the investors who make the financial decisions. In fact, according to
Spaniol and Bayen (2005), cognitive skills of investors are an additional constraint that
optimizes individuals financial decision making. Tversky and Kahneman (1981) find
experimental evidence on financial decision making under uncertainty that shows that people
do not behave as in traditional models. Because investors do not always behave as descripted
in traditional models there are many behavioral phenomena that influence the financial
markets. Kahneman and Tversky (1979) give a critique of expected utility theory as a
descriptive model of decision making under risk and develop an alternative model, which they
call prospect theory.


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Our study has Nine constructs, those are:-
1. PROSPECT THEORY
2. OVERCONFIDENCE
3. DISPOSITION EFFECT
4. NARROW FRAMING
5. HEURISTICS
6. REGRET AVERSION
7. COGNITIVE DISSONANCE
8. ANCHORING
9. MENTAL ACCOUNTING


1. PROSPECT THEORY
The prospect theory state that people make decisions based on the potential value of
losses and gains rather than the final outcome. Prospect theory is a behavioral economic
theory that describes decisions between various alternatives that involve risk. Their theory
says that people make decisions based on the potential value of losses and gains rather
than the final outcome and therefore will base decisions on perceived gains rather than
perceived losses.

2. OVERCONFIDENCE
Overconfidence is a second behavioural phenomenon. In the model of Daniel,
Hirshleifer and Subrahmanyam (2001), investors who are overconfident overrate signal
precision and overreact to private signals about payoffs of economic factors.
Consequently, mispricing of factor payoffs arise and all securities which cash flows are
provided from these factors. Therefore, mispricing occurs from investors
misinterpretation of information about factor cash flow and reflects overreaction to cash
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flow news about fundamental factors. Daniel et al. (1998) state individuals exaggerated to
private signals when they are overconfident about those signals. If individuals correct their
confidence over time then their overreaction to private signals becomes more important
before changing. In this way there is a long-run overreaction and correction.
3. DISPOSITION EFFECT
Another important behavioral phenomenon is disposition effect. According to
Henderson (2012) there are various studies about the disposition effect that state investors
are unwilling to sell assets at a loss comparing to the price at which they purchase this
asset. Disposition effect is the tendency of an investor to sell winners too early and hold
losers too long. The study of Ammann, Ising and Kessler (2012) conclude that managers
who have a lower disposition effect invest more in larger equities with a higher trade
volume, a higher past performance and a higher risk-adjusted performance. However, the
economic environment and fund characteristics only account for a part amount of the
diversification in the disposition effect across mutual funds.
4. NARROW FRAMING
According to Bailey et al. (2011) narrow framing is the propensity of an investor to
select investments individually, instead of considering the broad impact on her portfolio.
Barberis and Huang (2004) state that narrow framing stand for the utility people receive
direct from the outcome of a specific option and not indirect through the contribution of
options to his total wealth. In this way people receive utility from the gambles result
instead of what would be justified by a concern for their overall wealth risk.

5. HEURISTICS
Heuristics stands for the tendency that individuals make judgments quickly. Heuristics
are strategies used to access complex problems and limit the explaining information.
Investors tend to make rules of thumb in order to process the information so that they can
make investment decisions. It is possible that investors have evaluated the information
objectively, but is difficult to ignore the emotional and cognitive errors involved in each
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step taken by the investor. It may lead to desired decisions, but most of the time it result in
unfavorable and poor decision outcomes.

6. REGRET AVERSION
Regret is the negative feeling which occurs after a bad choice. In investment context is
refers to the investors reaction at making a mistake. They joy of satisfaction and the pain
of regret is relevant to understand the behavioral impact on investment decisions. Because
people want to be satisfied and ward off regret they will realize profits and retard losses.
Investors are not allowed to admit their mistakes and feel regret because if they do, they
tend to avoid selling the stocks which decreased in value and sell the stocks they have
increased in value promptly. Zeelenberg, Beattie and de Vries (1996) state that regret
theory is an action-based theory. The utility of a choice option depends on the feelings
generated by the results of rejected options.

7. COGNITIVE DISSONANCE
Cognitive dissonance refers to the conflict caused by holding conflicting cognitions
simultaneously. This concept was introduced by the psychologist Festinger (1956).
Because the experience of dissonance is unpleasant, the person will strive to reduce it by
changing their beliefs. Later research shows that when people are confronted with new
information, they want to keep their current understanding of the world and reject or avoid
the new information. Or they convince themselves that there is no conflict at all. Cognitive
dissonance is considered as an explanation for attitude change, it is the mental conflict
investors have to deal with when they realize they made a mistake. Investors do not want
to change their decisions, so they persuade themselves that they made a rational decision.

8. ANCHORING
When investors need to make a decisions they often fail to do enough research because
there is just too much data to collect and analyses. Instead they proceed based on a single
figure or fact, while ignoring the important information. This irrational behavior is called
anchoring. Hoguet (2005) shows that when investors need to define a quantum investors
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will anchor on the most recent information available. Therefore investors tend to under
react to new information. Sewell (2007) state that when a relevant value (an anchor) is
available, people make expectations by beginning from an initial value (an anchor), that is
adjusted to yield the final answer. It is possible that the anchor is proposed by the
formulation of the problem, or it can be the outcome of a specific computation. In both
ways adjustments are insufficient.

9. MENTAL ACCOUNTING
Thaler (1990) introduced the notion of mental accounting. In 1999 he notes that mental
accounting includes three components. The firs component of mental accounting consists
of how results are received and experienced, and after that how decisions are made and
then evaluated. The second part allocates the activities to specific accounts. It follows the
inflow and outflow of funds from the specific activities. The third component is about the
frequency with which account is evaluated. This can be daily, weekly, monthly or on
yearly basis. Every component of mental accounting reduces the economic principle of
substitutability. Consequence is that decision choices are influenced








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OBJECTIVES:-

To study the perception of respondents on Behavioral biases in financial decision making.
To study the relationship between different behavioral biases in financial decision making.
To study the differences in demographic variables pertaining to Behavioral biases in
financial decision making.














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HYPOTHESIS
H1
a) There exists a difference for confidence behavioral bias between male and female.
b) There exists a difference for prospect behavioural bias between male and female.
c) There exists a difference for mental accounting behavioral bias between male and
female.
d) There exists a difference for framing behavioral bias between male and female.
e) There exists a difference for cognitive dissonance behavioural bias between male and
female.
f) There exists a difference for heuristics behavioral bias between male and female.
g) There exists a difference for disposition and anchoring behavioral bias between male and
female.
H2:
a) There exists a difference for types of decision making between male and female.







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CHAPTER-2
RESEARCH AND
METHODOLOGY








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RESEARCH DESIGN AND METHODOLOGY
METHODOLOGY
a) Methodology used for Data Collection
It is a systematic approach of identifying the problem, collecting the information,
analyzing the information and providing alternate suggestions. Three type of project
research can be distinguished. Some research is exploratory, i.e., to gather preliminary data
to shed light on the real nature of the problem and suggest possible hypothesis on new
ideas. Some are descriptive, to ascertain certain magnitudes.
1. Defining the problem and research objective:
The research objective state that what information is needed to solve the problem.
Here the First and the foremost objective of our project is to analyzing the Behavioural
biases in financial decision making
2. Developing research plan
The research is the fundamental research, pure/basic research that emphasis on
behavioural biases of investors in making financial decision making. It is a
DESCRIPTIVE NON-EXPERIMENTAL research. It is a quantitative research done
with the help of questionnaires. Descriptive in nature, hence conclusions can be drawn. It
is a single cross sectional design where there is only one sample of respondents and
information is obtained from them only. Around 102 investors would taken up. We have
used a SYSTEMATIC SAMPLING design. We have used LIKERTS 5 POINT SCALE
that is Strongly disagree to Strongly agree. On the other hand, the data is to be collected
by mailing the questionnaire to the prospective sample that is the investors who invest in
different sectors of investment.



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Figure No-1: Methodology used for Data Collection






Defining the
problem and
research objective






Developing research
plan

Collection and
Sources of Data

Sampling Plan


Analyze the
collected
information

Report research
finding
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3. Collection and Sources of Data:
To collect the data, relevant information is necessary as regards to the project; as a
result data was collected by using two ways:

Figure No-2: Sources of Data
Primary Data
In this the information is being possessed with first hand information, which is
new and fresh. The tools used by me for the primary data are as follow :
Questionnaire
Face-to-Face Interview
Observation
Secondary data
The information that is received with the help of Journals, Magazines, Books
etc.
References used from management books
Gathered information through World Wide Web (www).
Support and knowledge provided by Faculty and Company guide.


SECONDARY
DATA

PRIMARY
DATA
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4. Sampling Plan
We have used a SYSTEMATIC SAMPLING design.
Sampling unit: The prospective sample is Investor who invests in different sectors.
Sampling size: A survey was conducted for 102 respondents.
5. Analyse the collected information:
This involves converting raw material in to useful information. It involves
tabulation of data and using statically measures on them for developing frequency
distribution and calculating the averages and dispersions
6. Report research finding
This phase will mark the culmination of the marketing research efforts. The report with
the research finding is a formal written document.
b . Methodology used for Data Analysis
Tools used for data analysis are Bar Chart and Pie Chart. Software tool which is used in the project is
Ms Excel








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CHAPTER-3
ANALYSIS AND CONCLUSION








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ANALYSIS
OVERCONFIDENCE
Statements MEAN STANDARD
DEVIATION
Thinking hard and for a long time about something gives
me little satisfaction
3.2647 0.9842
I trust my initial feelings about people 3.5294 0.9408
I prefer to do something that challenges my thinking
abilities rather than something that requires little thought
3.5098 0.9723
I believe in trusting my hunches 3.4705 0.8640
I prefer complex to simple problems 3.4803 0.9198
I try to avoid situations that require thinking in depth
about something
3.5588 0.9603
When it comes to trusting people, I can usually rely on
my "gut feelings"
3.5980 0.9570
My initial impressions of people are almost always right 3.5294 0.9303
I don't like to have to do a lot of thinking 3.5294 0.9303
I can usually feel when a person is right or wrong even if I
can't explain how I know
3.7254 0.9244
TABLE 1 :



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INTERPRETATION:
The analysis of table 1 shows the perception of respondents towards their own gut feelings,
confidence and their instincts. Most of the respondents, Trust their initial feeling about
people(Mean =3.5294 & Standard deviation= 0.9480), They are confident about their Gut
Feeling and Hunches (Mean =3.4705 & Standard deviation= 0.8640), They can usually feel
when person is right or wrong even if they cannot explain it(Mean =3.7254 & Standard
deviation= 0.9244), and They avoid situations which require depth thinking as it gives little
satisfaction to them(Mean =3.2647 & Standard deviation= 0.9842),. This shows the
overconfidence bias in the respondents Overconfidence refers to the habit of overestimating
own ability to perform in given tasks. People tend to be overconfident about own capabilities
and level of knowledge. Overconfidence has several forms, such as .better than average.,
.optimism bias. and .setting too narrow confidence limits.

EXCESSIVE OPTIMISM/ OVERCONFIDENCE BIAS
Statements MEAN STANDARD
DEVIATION
I am better than average drivers 3.8431 0.9924
I am a average driver 3.3235 1.0451
I am a below average driver 2.9117 1.1697
I think, I am an above average performer when it comes
to my job/collage
3.8627 0.7041
I have better athletic abilities in comparison to my peer
group age.
3.8137 0.7410
TABLE 2

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INTERPRETATION:
The above Table 2 shows whether overconfidence and excessive optimism exists in
respondents answers. For this few questions were asked in order to determine overconfidence
and excessive optimism. The respondents asked to categorize themselves into better than
average, average, and below average drivers. Most of the respondents replied that they are
better than average drivers with the Mean of 3.8431 and Standard Deviation 0.9924 while only
few respondents said they are worse or below average drivers, with the rest with Mean of
3.3235 & Standard Deviation of 1.0451 stating that they are average drivers. The another
question asked whether the respondents thinks he/she is an above average performer when it
comes to his/her job/school related activities, most of the respondents said yes they have better
athletic abilities and are above average performers when it comes to their job/collage/peer
group age. The above analysis shows that investors are overconfident and excessive optimism.
This is called as better-than-average effect where investors may believe that they have better
skills than average skills.










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MEASURE OVERCONFIDENCE BIAS BY PRESENTING A SCENARIO:-
YOU HAVE TO IMAGINE THAT YOU FAILED THE LAST TEST. YOU HAVE A
OPPORTUNITY TO REPLACE THE FAILING GRADE FROM THE LAST EXAM WITH
WHATEVER YOU WOULD GET ON THE NEXT EXAM KNOWING THAT YOU
WOULD HAVE VERY LITTLE TIME FOR STUDY AND A SMALL CHANCE THAT
YOUR GRADE ON THE NEXT EXAM WOULD BE HIGER.
Statements MEAN STANDARD
DEVIATION
I will pass the exam. 3.4803 2.8627
I will fail the exam. 1.1056 1.1435
TABLE 3
INTERPRETATION:
The above Table 3 measured overconfidence bias by presenting the scenario. Most of the
respondents said Yes they will pass the exam with the higher mean 3.4803 & standard
deviation 2.8627 as compare to respondents with low mean and standard deviation who said
No they might fail the exam. Therefore we concluded that respondents do tend to exhibit
overconfidence, even in situations where realistically, they cannot expect to perform well.
Given a very small chance of success, 2/3 of the respondents still answered with a Yes,
showing a high degree of overconfidence.





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RESPONDET PERCEPTION:-
Statements MEAN STANDARD
DEVIATION
It is easy for me to find a job at close to my current salary if I
lost my current one.
3.7450 0.8638
It is difficult for me to find a job at close to my current salary if
I lost my current one.
3.1960 1.0627
TABLE 4
INTERPRETATION:
In the above table 4, it is attempted to quantify the perception respondents have about how
easy it would be to find a job at close to their current salary if they lost their current one. Most
of the respondents are moderately agree with the perception of finding a job at close to their
current salary if they lost their current one. Respondents having mean 3.7450 & standard
deviation 0.8638 found easy to find a job at close to their current salary whereas respondents
having mean of 3.1960 and standard deviation of 1.0627 found difficult to find a job at close
to their current salary.







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TO SEE IF THERE IS A PROPENSITY TO BE EXCESSIVELY OPTIMISTTIC AND
OVERCONFIDENCE EXTENDS INTO THE FIELD OF PERSONAL INVESTMENT.
Statements MEAN STANDARD
DEVIATION
Good advice is the reason for my best investment decision 3.8529 0.9687
Strong market/fortunate timing is the reason for my best
investment decision
3.9313 0.9976
My own skills and intelligence is the reason for my best
investment decision
4.0490 0.8129
My luck is the reason for my best investment decision 3.8921 0.9109
When I invest in a new stock issue, I expect my investment
will give sure gain of 50% of my investment
3.9607 0.8074
When I invest in a new stock issue, I expect 0.5 probability to
gain 100% and 0.5 probability to loose 100%
3.5490 1.0774
TABLE 5
INTERPRETATION:
In Table 3 an investment related question were asked to see if there is a propensity to be
excessively optimistic and overconfident extends into the field of personal investments. The
question looked for the general reason for the best investment decision of the respondent with
the following choices: good advice, strong market/ fortunate timing, own skill and
intelligence, and luck. Most of the respondents agree with the statement that their own skills
and intelligence is the reason for the best investment decision, which gets the higher mean of
4.0490 & lower standard deviation of 0.8129, whereas other with lower mean &
comparatively higher standard deviation feels their luck, good advice and strong market/
fortunate timing are the reasons for their best investment decision. This overconfidence bias is
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also called as Miscalibration which states that people rate their capabilities and their prospects
higher than those of their peers. People have a tendency to be overly confident about own
capabilities and level of knowledge.



























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PROSPECT THEORY:-
SITUATION 1
YOU HAVE RS. 1000 AND YOU MUST PICK ONE OF THE FOLLOWING CHOICES.
CHOICE A: YOU HAVE A 50%CHANCES OF GAINING RS. 1000 AND A 50%
CHANCES OF GAINING RS. 0
CHOICES B: YOU HAVE A 100% CHANCES OF GAINING RS. 500
Statements MEAN STANDARD
DEVIATION
I will choose, choice A 3.0588 1.3036
I will choose, choice B 3.3137 1.3569
TABLE 6
SITUATION 2
YOU HAVE RS. 2000 AND YOU MUST PICK ONE OF THE FOLLOWING
CHOICES.CHOICE A: YOU HAVE A 50% CHANCES OF LOSSING RS. 1000 AND 50%
CHANCES OF LOSSING RS. 0
CHOICE B: YOU HAVE A 100% CHANCES OF LOSSING RS. 500
Statements MEAN STANDARD
DEVIATION
I will choose, choice A 3.5294 1.1406
I will choose, choice B 2.9313 1.2527
TABLE 7

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INTERPRETATION:
The analysis of table 7 reveals that, the majority of respondents are Risk Averse in Situation
1 and Risk Seekers in Situation 2. In above table, Mean of the Choice A is 3.0588 with
a Standard Deviation of 1.3036, whereas Mean of Choice B is 3.3137 with a Standard
Deviation of 1.3569 in Situation 1. In Situation 2 Mean of the Choice A is 3.5294 with a
Standard Deviation of 1.1406, whereas Mean of Choice B is 2.9313 with a Standard
Deviation of 1.2527. The results of this study showed that an overwhelming majority of
respondents has chosen B for Situation 1 and A for Situation 2. The implication is that
respondents are willing to settle for a reasonable level of gains even if they have a reasonable
chance of earning more in Situation 1, but are willing to engage in risk seeking behaviours
where they can limit their losses in Situation 2. This shows the Prospect theory behavioural
bias, which state that people make decisions based on the potential value of losses and gains
rather than the final outcome and thus will base decisions on perceived gains rather than
perceived losses. When a person is given two equal choices, one expressed in possible gains
and the other in possible losses, people will choice the first one.










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MENTAL ACCOUNTING:-
SITUATION 1
IMAGIN THAT YOU HAVE DECIDED TO WATCH A MOVIE WORTH Rs.250 PER
TICKET. AS YOU ENTER THE THEATER, YOU DISCOVER THAT YOU LOST YOUR
Rs. 250. WOULD YOU STILL PAY Rs. 250 FOR A TICKET TO MOVIE.
Statements MEAN STANDARD
DEVIATION
Yes, I will still pay Rs. 250 for a ticket 3.7647 0.8807
No, I will not pay Rs. 250 for a ticket 2.9705 1.1120
TABLE 8
SITUATION 2
IMAGIN THAT YOU HAVE DECIDED TO WATCH A MOVIE AND HAVE PAID RS.250
FOR TICKET. AS YOU ENTER THE THEATER, YOU DISCOVER THAT YOU HAVE
LOST THE TICKET. THE SEAT WAS NOT MARKED AND THE TICKET CAN NOT BE
RECOVERED. WOULD YOU PAY RS. 250 FOR ANOTHER TICKET.
Statements MEAN STANDARD
DEVIATION
Yes, I will still buy another ticket 3.1666 1.0998
No, I will not buy another ticket 3.5392 0.9509
TABLE 9



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INTERPRETATION:
The analysis of Table 1 n Table 2 shows how results are received and experienced, and after
that how decisions are made and then evaluated. Two situations were given where nothing is
really different between the questions. A certain amount of money (Rs 250) has been
irretrievably lost, and the only decision respondents have to make is whether or not the movie
experience is worth Rs 250 to them. Whether or not the Rs 250 was lost in the form of cash or
in the form of a movie ticket is truly irrelevant. In Situation 1 most of the respondents said
Yes they would buy the tickets whereas in Situation 2 only few of the respondents said
Yes still they would buy another ticket. The difference in the responses is due to Mental
Accounting. Mental accounting is one of the method people use to make decision making
manageable.













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DECISION MAKING PROCESS
Statements MEAN STANDARD
DEVIATION
When I make decisions, I tend to rely on my intuition 3.9313 0.8236
I rarely make important decisions without consulting other
people
3.6666 0.9369
When I make a decision, it is more important for me to feel the
decision is right than to have a rational reason for it
3.8627 0.9753
I double check my information sources to be sure I have the
right facts before making decisions
3.9215 0.7131
I use the advice of other people in making my important
decisions
3.8039 1.0151
I put off making decisions because thinking about them makes
me uneasy
3.6960 1.0789
I make decisions in a logical and systematic way 3.9509 0.7882
When making decisions I do what feels natural at the moment 3.8039 0.9123
I generally make snap decisions 3.6372 0.9311
I like to have someone steer me in the right direction when I an
faced with important decisions
3.6960 0.9204
My decision making requires careful thought 3.7156 0.9160
When making a decision, I trust my inner feelings and
reactions
3.9215 0.7921
When making a decision, I consider various options in terms of 3.7450 0.8864
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a specified goal
I avoid making important decisions until the pressure is on 3.5882 0.9785
I often make impulsive decisions 3.6078 1.0355
When making decisions, I rely upon my instincts 3.7450 0.9614
I generally make decisions that feel right to me
3.9313 0.6488
I often need the assistance of other people when making
important decisions
3.8627 0.8088
I often make decisions on the spur of the moment
3.8921 0.6118
I postpone decision making whenever possible
3.7647 0.7730
I often put off making important decisions
3.6078 0.8692
If I have the support of others, it is easier for me to make
important decisions
3.8627 0.7317
I generally make important decisions at the last minute
3.6274 0.9001
I make quick decisions
3.8627 0.6299
TABLE 10
INTERPRETATION
The analysis of Table 10 shows different kinds of decision making styles. Some respondents
are intuitive in nature, few are consultative in nature, ethical, rational, impulsive, avoidance
etc. They act according to their Personal Information Factors: i.e. personal qualifications,
experiences, attitudes etc. Information Characteristics like information quality, quantity and
frequency Tasks and Process, standardized procedures or methods.


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NARROW FRAMING
SITUATION 1
IMAGIN THAT due to a factory closing 600 jobs were about to be lost. However, if
PROGRAM A : is adopted, 200 jobs will be saved.
PROGRAM B: is adopted, there is a 1/3 probability that 600 jobs will be saved and a 2/3
probability that none of the 600 jobs will be saved.
Statements MEAN STANDARD
DEVIATION
I will choose, program A 3.5196 1.3839
I will choose, program B 2.7352 1.4887
TABLE 11
SITUATION 2
PROGRAM C: is adopted,400 people will lose their jobs.
PROGRAM D: is adopted, there is a 1/3 probability that nobody will lose their job and a 2/3
probability that 600 will lose their job.
Statements MEAN STANDARD
DEVIATION
I will choose, program C 3.0686 1.4709
I will choose, program D 3.1274 1.4327
TABLE 12


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INTERPRETATION:
In table 11 &12, Though the problems are identical but framed in a different way which shows
that in Situation 1, Most of the respondents have chosen program A, so they seems to be
Risk Averse. In situation 2, Most of the respondents have chosen program D, and they
seems to be Risk Seeking. Research shows that most people chose Program A in situation 1
and D in situation 2, even though the two programs produce the same results. This result is
due to the framing bias. The framing bias is the tendency to consider risks about gains
saving jobsdifferently than risks pertaining to losseslosing jobs. Therefore it is encouraged
to frame decision questions in alternative ways in order to avoid this bias.














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HEURISTIC
SITUATION 1
Imagine that you were shown a picture of two people, person A and person B.
Person A is well-dressed, wearing a fancy watch, and has a briefcase in his hand.
Person B is wearing jeans and flip-flops, looks as if he just woke up, and is busy texting on
his cell phone.
Now predict who is more likely to show up on time for the local monthly donation meeting,
who would you choose?
Statements MEAN STANDARD
DEVIATION
I will choose, person A 3.9313 0.8115
I will choose, person B 2.7647 1.2521
TABLE 13
INTERPRETATION:
The table 13 tells that most people have chosen person A, because based on past experiences
a part of the mental representation of person A is one that includes being on time for
meetings. Using the representativeness heuristic respondents were able to make a quick
decision with only a few pieces of available information. Being able to access past mental
representations is without a doubt advantageous, but by relying solely on the
representativeness heuristic to make decisions respondents sometimes sacrifice accuracy for
speed.
SITUATION 2
A highly profitable software company is searching for its next CEO. They have narrowed
their search down to two candidates, one male and one female. This particular company has
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never employed anyone but males in any of its leadership roles. Who would you predict they
will hire?
Statements MEAN STANDARD
DEVIATION
Company will hire male CEO 4.0098 0.8616
Company will hire female CEO 2.7156 1.2135
TABLE 14
INTERPRETATION:
The above table14 shows the representativeness heuristic. Most of the respondent feels that
Company will hire male CEO which has mean of 4.0098 and standard deviation 0.8616.
Relying solely on the representativeness heuristic, this important decision will be influenced
by past experiences, and they are more inclined to select the male candidate. Limiting our
decisions to ones that fit with what our past experiences tell us something should look like
can stifle creativity and diversity. It is important to recognize that the representativeness
heuristic exists in all of us.
SITUATION 3
Statements MEAN STANDARD
DEVIATION
There are more words that start with the letter R 3.3235 1.1787
There are less words that start with the letter R 3.1274 1.1575
There are more words that have 'r' as the third letter 3.6274 1.0892
There are less words that have 'r' as the third letter 3 1.0990
TABLE 15

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INTERPRETATION:
Few questions were asked in order to assess the extent to which respondents use familiarity to
make decisions. The first question asked if respondents were to select a random word from the
dictionary, would it be more probable they would have encountered a word that started with an
R compared to the 3rd letter in the word being the R. Most of us can recollect words that start
with an R faster than we can think about words that have R in the middle. Therefore, if most
respondents answered starts with R, then they would be making the mistake of recalling
familiar words. 48.57% of the total number of respondents answered that they would be more
probable to find a word that starts with R and 51.43% answered that R is the 3rd letter. The
statement There are more words that have 'r' as the third letter has higher Mean value which
is 3.6274 than the statement There are more words that start with the letter R with Mean
3.3235. Overall, the answers to this question showed that familiarity heuristic was not present
in investors.










37

Cognitive Dissonance
Statements MEAN STANDARD
DEVIATION
If someone that you don't like does something nice for you, you
might reconcile that by convincing yourselves that she did the
nice thing just to make us feel guilty for not liking her.
4.1176 0.8359
If you know that smoking is bad, you might justify the fact that
you smoke by saying that, if smoking doesn't kill you,
something else will.
3.6666 0.9474
When I shop something, later on I regret my decision buying
that stuff.
3.3333 1.1717
TABLE 16
INTERPRETATION:
The above table 16 shows the Cognitive dissonance behavioral bias, which occurs when we
act in a way different from our beliefs. To deal with the uncomfortable feeling, we will either
change our actions to be in line with our beliefs or change our beliefs to match our actions.
Question were asked to respondents that If someone that you don't like does something nice
for you, you might reconcile that by convincing yourselves that she did the nice thing just to
make us feel guilty for not liking her or if they know smoking is bad, they still might justify
the fact that they smoke by saying , if smoking doesnt kill us something else will, Most of
the respondents strongly agreed with these statements. This shows the cognitive dissonance in
investors. Cognitive dissonance is considered as an explanation for attitude change, it is the
mental conflict investors have to deal with when they realize they made a mistake. Investors
do not want to change their decisions, so they persuade themselves that they made a rational
decision.

38

DISPOSSITION EFFECT AND ANCHORING
Statements MEAN STANDARD
DEVIATION
I sell my profitable shares too early 3.9117 0.8686
Only in some situations, I sell my profitable shares too early 3.6176 0.8792
I do not sell my profitable shares too early 3.2647 1.1162
Rarely, I sell my profitable shares too early 3.2843 1.0376
I keep holding my loser shares in excess. 3.8235 0.8834
I do not keep holding my loser shares in excess. 3.2647 1.1162
Rarely I keep holding my loser shares in excess. 3.3039 0.9625
TABLE 17
INTERPRETATION:
The above table 2 shows the perception of respondents to sell winners too early and hold
losers too long. Most of the respondents sell their profitable shares too early and keep on
holding their loser shares in excess as investors are unwilling to sell assets at a loss comparing
to the price at which they purchase the asset. This shows the disposition effect in investors.
Disposition effect is the tendency of an investor to sell winners too early and hold losers too
long. Most of the respondents agree with the statement that they sell profitable shares too early
which has mean 3.9117 and standard deviation 0.8686 and they keep on holding their losers
shares in excess which has mean 3.8325 and standard deviation is 0.8834.




39

1. a.) NULL HYPOTHESIS: There exists a difference for confidence bias between
male and female.
Group Statistics

GENDER N Mean Std. Deviation Std. Error Mean
@_OVERCONFIDENCE_BIASE__
1.00 47 3.5243 .56001 .08169
2.00 55 3.6255 .29387 .03963

Independent Samples Test

Levene's Test for
Equality of Variances
t-test for Equality of Means

F Sig. T Df
Sig. (2-
tailed)
Mean
Difference
Std. Error
Difference
95% Confidence
Interval of the
Difference
Lower Upper
@_OVERCONFIDENCE_BI
ASE__
Equal variances assumed 14.658 .000 -1.166 100 .246 -.10120 .08679 -.27339 -.07099
Equal variances not assumed -1.115 67.035 .269 -.10120 .09079 -.28242 -.08002
TABLE 18
INTERPRETATION
For the purpose of testing hypothesis (1.a.), t-test for equality of variances has been applied.
Sig value of Levenes test is0.00 (s=.000, p < 0.05), We can assume that the variance of two
groups are unequal. Therefore, the p-value is .269, we reject the null hypothesis. According to
the table, it can be seen that female respondents (m=3.6255) are more overconfident as
compared to male respondents (m=3.5243). This may be because female investors may believe
that they have better skills than average skills. They have the habit of overestimating own
ability to perform in given tasks. They tend to be overconfident about own capabilities and
40

level of knowledge. This study reveals that overconfidence bias impact on different level of
financial decision making.
1. b.) NULL HYPOTHESIS: There exists a difference for prospect theory bias between
male and female.
Group Statistics
GENDER N Mean Std. Deviation Std. Error Mean
PROSPECT_THEORY_BIASE
1.00 47 3.0957 .47363 .06909
2.00 55 3.3045 .48518 .06542


Independent Samples Test

Levene's Test
for Equality of
Variances
t-test for Equality of Means

F Sig. T Df
Sig. (2-
tailed)
Mean
Difference
Std. Error
Difference
95% Confidence
Interval of the
Difference
Lower Upper
PROSPECT_THE
ORY_BIASE
Equal variances
assumed
2.607107 .110 -2.190 100 .031 -.20880 .09533 -.39793 -.01967
Equal variances not
assumed
-2.195 98.213 .031 -.20880 .09515 -.39761 -.01999
TABLE 19


41

INTERPRETATION
For the purpose of testing hypothesis (1.b.), t-test for equality of variances has been applied.
Sig value of Levenes test is 0.110 (s=.110, p < 0.05), We can assume that the variance of two
groups are equal. Therefore, the p-value is .031, we reject the null hypothesis. According to
the table, it can be seen that female respondents (m=3.3045) are more influenced by prospect
theory bias as compared to male respondents (m=3.0957). This may be because female
investors may make decisions based on the potential value of losses and gains rather than the
final outcome.
1. c.) NULL HYPOTHESIS: There exists a difference for mental accounting bias
between male and female.
Group Statistics

GENDER N Mean Std. Deviation Std. Error Mean
MENTAL_ACCOUNTING
1.00 47 3.1702 .56652 .08263
2.00 55 3.5227 .40902 .05515














42

Table 20
INTERPRETATION
The above table shows the testing hypothesis (1.c.), t-test for equality of variances has been
applied. Sig value of Levenes test is .148 (s=.148, p < 0.05), Which means we can assume
that the variance of two groups are equal. Therefore, the p-value is .000. Therefore, we reject
the null hypothesis. It shows that there exists no difference for mental accounting bias between
male and female.



Independent Samples Test

Levene's
Test for
Equality of
Variances
t-test for Equality of Means

F Sig. T Df
Sig. (2-
tailed)
Mean
Difference
Std. Error
Difference
95% Confidence
Interval of the
Difference
Lower Upper
MENTAL_ACC
OUNTING
Equal variances
assumed
2.125 .148 -3.638 100 .000 -.35251 .09690 -.54477 -.16026
Equal variances
not assumed
-3.548 82.213 .001 -.35251 .09935 -.55014 -.15488
43

1. d.) NULL HYPOTHESIS: There exists a difference for narrow framing bias between
male and female.
Group Statistics

GENDER N Mean Std. Deviation Std. Error Mean
NARROW_FRAMING
1.00 47 3.0266 .36577 .05335
2.00 55 3.1864 .46701 .06297


Independent Samples Test

Levene's
Test for
Equality of
Variances
t-test for Equality of Means

F Sig. T Df
Sig. (2-
tailed)
Mean
Difference
Std. Error
Difference
95% Confidence
Interval of the
Difference
Lower Upper
NARROW_FRAMING
Equal
variances
assumed
5.481 .021 -1.899 100 .060 -.15977 .08412 -.32665 -.00712
Equal
variances not
assumed
-1.936

99.291
.056 -.15977 .08253 -.32353 -.00399
TABLE 21

44

INTERPRETATION
The above table shows the testing hypothesis (1.d.) i.e. t-test, for equality of variances has
been applied. Sig value of Levenes test is .021 (s=.021, p < 0.05), Now, we can assume that
the variance of two groups are equal. Therefore, the p-value is .060. We reject the null
hypothesis. It shows that there exists no difference for narrow framing bias between male and
female.















45

1. e.) NULL HYPOTHESIS: There exists a difference for heuristics bias between male
and female.
Group Statistics
GENDER N Mean Std. Deviation Std. Error Mean
HEURISTIC
1.00 47 3.1569 .43102 .06287
2.00 55 3.4455 .43685 .05890
Independent Samples Test

Levene's
Test for
Equality of
Variances
t-test for Equality of Means

F Sig. T Df
Sig. (2-
tailed)
Mean
Difference
Std. Error
Difference
95% Confidence
Interval of the
Difference
Lower Upper
HEURISTIC
Equal variances assumed 1.396 .240 -3.346 100 .001 -.28854 .08625 -.45965 -.11743
Equal variances not
assumed
-3.349 97.926 .001 -.28854 .08615 -.45951 -.11757
TABLE 22


46

INTERPRETATION
The above table shows the analysis of testing hypothesis (1.e.) i.e. t-test, for equality of
variances has been applied. Sig value of Levenes test is .240 (s=.240, p < 0.05). We can
assume that the variance of two groups are equal. Therefore, the p-value is .001. We reject the
null hypothesis. It shows that there exists no difference for narrow heuristic bias between male
and female.















47

1. f.) NULL HYPOTHESIS: There exists a difference for cognitive dissonance bias
between male and female
Group Statistics
GENDER N Mean Std. Deviation Std. Error Mean
Cognitive Dissonance
1.00 47 3.6809 .73975 .10790
2.00 55 3.6945 .49269 .06643
Independent Samples Test

Levene's Test
for Equality of
Variances
t-test for Equality of Means

F Sig. T Df
Sig. (2-
tailed)
Mean
Difference
Std. Error
Difference
95% Confidence
Interval of the
Difference
Lower Upper
Cognitive
Dissonance
Equal variances
assumed
6.597 .012 -.111 100 .921 -.01369 .12290 -.25753 -.23014
Equal variances not
assumed
-.108 77.943 .914 -.01369 .12672 -.26597 -.23858
TABLE 23



48

INTERPRETATION
For the purpose of testing hypothesis (1.F.), t-test for equality of variances has been applied.
Sig value of Levenes test is 0.012 (s=.012, p < 0.05), We can assume that the variance of two
groups are equal. Therefore, the p-value is .921, we reject the null hypothesis. According to
the table, it can be seen that female respondents (m=3.6945) are more influenced by prospect
theory bias as compared to male respondents (m=3.6809).















49

1. g.) NULL HYPOTHESIS: There exists a difference for disposition and anchoring
bias between male and female.
Group Statistics
GENDER N Mean Std. Deviation Std. Error Mean
DISPOSSITION_EFFECT_AND_
ANCHORING_
1.00 47 3.3739 .55692 .08124
2.00 55 3.6000 .56571 .07628

Independent Samples Test

Levene's Test for
Equality of
Variances
t-test for Equality of Means

F Sig. T Df
Sig. (2-
tailed)
Mean
Difference
Std. Error
Difference
95% Confidence
Interval of the
Difference
Lower Upper
DISPOSSITION_
EFFECT_AND_A
NCHORING_
Equal variances
assumed
.329 .568 -2.027 100 .045 -.22614 .11157 -.44750 -.00478
Equal variances
not assumed
-2.029 97.988 .045 -.22614 .11144 -.44728 -.00500
TABLE 23



50

INTERPRETATION
For the purpose of testing hypothesis (1.g.), t-test for equality of variances has been applied.
Sig value of Levenes test is 0.568 (s=.568, p < 0.05), We can assume that the variance of two
groups are equal. Therefore, the p-value is .045, we reject the null hypothesis. According to
the table, it can be seen that male respondents (m=3.3739) are more influenced by disposition
effect and anchoring bias as compared to female respondents (m=3.3000). Male investor sell
winners too early and hold losers too long.















51

2 (a). NULL HYPOTHESIS: Their exists a difference for intuitive types of decision making
between male and female.
Group Statistics

GENDER N Mean Std. Deviation Std. Error Mean
INTUITIVE
1.00 47 3.7819 .78991 .11522
2.00 55 3.9091 .45227 .06098


Independent Samples Test

Levene's Test
for Equality
of Variances
t-test for Equality of Means

F Sig. T Df
Sig. (2-
tailed)
Mean
Difference
Std. Error
Difference
95% Confidence
Interval of the
Difference
Lower Upper
INTUITIVE
Equal variances assumed 7.920 .006 -1.106 100 .312 -.12718 .12523 -.37564 -.12129
Equal variances not
assumed
-.976 70.695 .333 -.12718 .13036 -.38714 -.13278
TABLE 25


52

INTERPRETATION
For the purpose of testing hypothesis (1.a.), t-test for equality of variances has been applied.
Sig value of Levenes test is 0.006 (s=.006, p < 0.05), We can assume that the variance of two
groups are equal. Therefore, the p-value is .312, we reject the null hypothesis. It means there
exists no difference for intuitive decision making between male and female respondents.

















53

2. (b). NULL HYPOTHESIS: Their exists a difference for consultative types of decision
making between male and female

Group Statistics

GENDER N Mean Std. Deviation Std. Error Mean
CONSULTATIVE
1.00 47 3.7702 .69279 .10105
2.00 55 3.7855 .41607 .05610


Independent Samples Test

Levene's Test
for Equality
of Variances
t-test for Equality of Means

F Sig. T Df
Sig. (2-
tailed)
Mean
Difference
Std. Error
Difference
95% Confidence
Interval of the
Difference
Lower Upper
CONSULTATIVE
Equal variances
assumed
6.773 .011 -.137 100 .891 -.01524 .11136 -.23617 -.20569
Equal variances not
assumed
-.132

72.833
.895 -.01524 .11558 -.24561 -.21512
TABLE 26


54

INTERPRETATION
The above table shows testing hypothesis (1.b.), t-test for equality of variances has been
applied. Sig value of Levenes test is 0.011 (s=.011, p < 0.05), We can assume that the
variance of two groups are equal. Therefore, the p-value is.891, we reject the null hypothesis.
It means there exists no relationship for consultative decision making between male and
female respondents. But we can see that female respondents (m=3.7702) are more consultative
in making decision as compare to male respondents (m=3.7855).















55

2 (C). NULL HYPOTHESIS: There exists a difference for ethical types of decision making
between male and female

Group Statistics
GENDER N Mean Std. Deviation Std. Error Mean
ETHICAL
1.00 47 3.8794 .68251 .09955
2.00 55 3.9273 .44763 .06036


Independent Samples Test

Levene's Test
for Equality of
Variances
t-test for Equality of Means

F Sig. T Df
Sig. (2-
tailed)
Mean
Difference
Std. Error
Difference
95% Confidence
Interval of the
Difference
Lower Upper
ETHICAL
Equal variances
assumed
10.120 .002 -.424 100 .672 -.04784 .11280 -.27164 -.17596
Equal variances not
assumed
-.411 77.153 .682 -.04784 .11642 -.27966 -.18398
TABLE 27


56

INTERPRETATION
The above table shows testing hypothesis (1.C.), t-test for equality of variances has been
applied. Sig value of Levenes test is 0.002 (s=.002, p < 0.05), We can assume that the
variance of two groups are equal. Therefore, the p-value is.672, we reject the null hypothesis.
It means there exists no relationship for ethical decision making between male and female
respondents. But we can see that female respondents (m=3.7702) are more ethical in making
decision as compare to male respondents (m=3.7855).















57

2. (d). NULL HYPOTHESIS: There exists a difference for avoidance types of decision
making between male and female
Group Statistics

GENDER N Mean Std. Deviation Std. Error Mean
AVOIDANCE
1.00 47 3.6064 .77974 .11374
2.00 55 3.7136 .56605 .07633

Independent Samples Test

Levene's Test
for Equality of
Variances
t-test for Equality of Means

F Sig. T df
Sig. (2-
tailed)
Mean
Difference
Std. Error
Difference
95% Confidence
Interval of the
Difference
Lower Upper
AVOIDANCE
Equal variances
assumed
3.718 .057 -.802 100 .424 -.10725 .13365 -.37242 -.15791
Equal variances not
assumed
-.783 82.506 .456 -.10725 .13697 -.37971 -.16521
TABLE 28



58

INTERPRETATION
The above table shows testing hypothesis (1.d.), t-test for equality of variances has been
applied. Sig value of Levenes test is 0.057 (s=.057, p < 0.05), We can assume that the
variance of two groups are equal. Therefore, the p-value is.424, we reject the null hypothesis.
It means there exists no relationship for avoidance decision making between male and female
respondents.















59

2. (e). NULL HYPOTHESIS: There exists a difference for rational types of decision making
between male and female
Group Statistics

GENDER N Mean Std. Deviation Std. Error Mean
RATIONAL
1.00 47 3.7801 .75590 .11026
2.00 55 3.8242 .47077 .06348


Independent Samples Test

Levene's Test
for Equality of
Variances
t-test for Equality of Means

F Sig. T Df
Sig. (2-
tailed)
Mean
Difference
Std. Error
Difference
95% Confidence
Interval of the
Difference
Lower Upper
RATIONAL
Equal variances
assumed
4.598 .034 -.359 100 .720 -.04410 .12286 -.28784 -.19964
Equal variances not
assumed
-.347 74.569 .730 -.04410 .12723 -.29757 -.20937
TABLE 28


60

INTERPRETATION
The above table shows testing hypothesis (1.e.), t-test for equality of variances has been
applied. Sig value of Levenes test is 0.034 (s=.034, p < 0.05), We can assume that the
variance of two groups are equal. Therefore, the p-value is.720, we reject the null hypothesis.
It means there exists no relationship for rational decision making between male and female
respondents.















61

2. (f). NULL HYPOTHESIS: There exists a difference for impulsive types of decision
making between male and female
Group Statistics

GENDER N Mean Std. Deviation Std. Error Mean
IMPULSIVE
1.00 47 3.5691 .75308 .10985
2.00 55 3.9045 .38637 .05210


Independent Samples Test

Levene's Test
for Equality of
Variances
t-test for Equality of Means

F Sig. T Df
Sig. (2-
tailed)
Mean
Difference
Std. Error
Difference
95% Confidence
Interval of the
Difference
Lower Upper
IMPULSIVE
Equal variances
assumed
18.741 .000 -2.889 100 .005 -.33540 .11608 -.56570 -.10510
Equal variances not
assumed
-2.759 66.170 .007 -.33540 .12158 -.57812 -.09267
TABLE 29



62

INTERPRETATION
The above table shows testing hypothesis (1.f.), t-test for equality of variances has been
applied. Sig value of Levenes test is 0.000 (s=.000, p < 0.05), We can assume that the
variance of two groups are equal. Therefore, the p-value is.007, we reject the null hypothesis.
It means there exists no relationship for impulsive decision making between male and female
respondents. But we can see that female respondents (m=3.9045) are more impulsive in
making decision as compare to male respondents (m=3.5691).














63

CONCLUSION
To conclude all above, with the view point of the research design in which I have done
sampling design through questionnaire. Around 102 investors have had filled the
questionnaire according to their perceptions and experience that they have accumulated so
far in their lifetime. Finally and majorly the data has been collected by mailing the
questionnaire to the perspective sample i.e. the investors who invest in different sectors.
Modern theory of investors decision-making suggests that investors do not always act
rationally while making an investment decision. They deal with several cognitive and
psychological errors. These errors are called behavioural biases and are there in many
ways. I have discussed nine behavioural biases that occur in financial decision making.
The four behavioural phenomena that I highlighted are prospect theory, overconfidence,
disposition effect and narrow framing. These four behavioural phenomena have been
explained and studied by several economics. And for all these phenomena there is prove
that they influences financial decision making. The prospect theory state that people make
decisions based on the potential value of losses and gains rather than the final outcome and
thus will base decisions on perceived gains rather than perceived losses. Overconfidence
creates mispricing of factor payoffs and all securities whose cash flows are derived from
the overestimate signal precision. This ensures difficulties in the financial decision making
process. The phenomenon disposition effect is the tendency of an investor to sell winners
too early and hold losers too long. In this way investors gain losses instead of winners
which is not if favor for financial decision making. As mentioned before narrow framing is
the propensity of an investor to select investments individually, instead of considering the
broad impact on her portfolio. So the expected outcome is the individually outcome,
instead of the combined outcome what it should be.
The conclusion can be drawn that investors not always act in a ration manner due to the
cognitive and psychological errors they have to deal with. They are influence by
behavioural factors that are important in financial markets because they influence the
investors who make the financial decisions. Busenitz and Barney (1998) state that if the
64

environment is uncertain and complex, biases and heuristics can be an effective and
efficient aim to decision making. Under these circumstances a more comprehensive and
careful decision making is not possible. Biases and heuristics present an effective way to
estimate the appropriate decisions.


















65

LIMITATION OF THE STUDY
In this research, researchers encountered a few limitations. The researchers solved the
Problems faced to make sure the research can be done in time.

The population size was limited to Delhi only.

The report has been accomplished with in a limited time frame. So, due to time and
resource constraints some important segment of population might have been missed out.


Respondents tend to be biased in answering the questionnaire provided by the researchers.
The views of investors may be different in different situations. This may lead to
inaccuracy and unreliability of the answer.

Many times it was very difficult to fill the questionnaire during peak hours because
questionnaire contained some sort of questions which required good amount of investors
feedback.


The responses of the respondents may not be accurate thinking that the management might
misuse the data.

The sample size does not reprent the total population






66







CHAPTER-5
REFEENCES AND ANNEXTURE








67

BIBLOGRAPHY
JOURNALS & TEXT BOOKS
Journal of Business & Economics Research August 2008 Volume 6, Number 8,
Behavioral Bias Within The Decision Making Process

Behavioral biases in financial decision making, Maartje Marchand, 18 mei 2012

What facors affect behavior biases? Evidence from Turkish individual stock investors.

Understanding behavioral finance by Richard Deves & Lucy F. Ackert


WEBSITES

http://www.docstoc.com/docs/27165423/Decision-Making-Questionnaire
http://www.pathwayadvisors.com/web/investment_suitability_questionnaire.pdf
https://www.inkling.com/read/organizational-behavior-kreitner-kinicki-10th/chapter-
12/decision-making-biase
http://www.business2community.com/strategy/perspective-framing-effect-list-biases-
judgment-decision-making-part-5-0762330#SoGckeIsEeyHf5a5.99
http://education-portal.com/academy/lesson/representativeness-heuristic-examples-
definition-quiz.html#lesson




68

ANNEXURE 1
QUESTIONNAIRE:
PART A: DEMOGRAPHICS

1. Age: _________ years.
2. Gender: M F
3. Age: 21-25
26-30
30-Above
4. Place of Schooling: URBAN
RURAL
5. APPROXIMATE YEARLY INCOME:
UPTO 2 LAKHS
2-3 LAKHS
3-4 LAKHS
MORE THAN 4



69

6. In which sector you invest:
BANK FIXED DEPOSITS/LIFE INSURANCE
SHARES AND MUTUAL FUND
REAL ESTATE/PROPERTY
OTHERS
PART B
There is no right or wrong answer. Read the following statements and mark
the response according to your opinion.
THIS QUESTIONNAIRE IS A PART OF MASTERS THESIS AT HSE`
S.no. Statements Strongly
Disagree
Disagree Undecided Agree Strongly
Agree
1 Thinking hard and for a
long time about
something gives me
little satisfaction

2 I trust my initial
feelings about people

3 I prefer to do
something that
challenges my thinking
abilities rather than
something that requires
little thought

70

4 I believe in trusting my
hunches

5 I prefer complex to
simple problems

6 I try to avoid situations
that require thinking in
depth about something

7 When it comes to
trusting people, I can
usually rely on my "gut
feelings"

8 My initial impressions
of people are almost
always right

9 I don't like to have to
do a lot of thinking

10 I can usually feel when
a person is right or
wrong even if I can't
explain how I know






71

EXCESSIVE OPTIMISM/ OVERCONFIDENCE BIAS
1 I am better than
average drivers

2 I am a average driver
3 I am a below average
driver

4 I think, I am an above
average performer
when it comes to my
job/collage

5 I have better athletic
abilities in comparison
to my peer group age.











72

MEASURE OVERCONFIDENCE BIAS BY PRESENTING A SCENARIO:-
YOU HAVE TO IMAGIN THAT YOU FAILED THE LAST TEST. YOU HAVE A
OPPORTUNITY TO REPLACE THE FAILING GRADE FROM THE LAST EXAM WITH
WHATEVER YOU WOULD GET ON THE NEXT EXAM KNOWING THAT YOU
WOULD HAVE VERY LITTLE TIME FOR STUDY AND A SMALL CHANCE THAT
YOUR GRADE ON THE NEXT EXAM WOULD BE HIGER.
1 I will pass the exam.
2 I will fail the exam.

RESPONDENT PERCEPTION:-
1 It is easy for me to
find a job at close to
my current salary if I
lost my current one.

2 It is difficult for me to
find a job at close to
my current salary if I
lost my current one.







73

TO SEE IF THERE IS A PROPENSITY TO BE EXCESSIVELY OPTIMISTTIC AND
OVERCONFIDENCE EXTENDS INTO TH EFIELD OF PERSONAL INVESTMENT.
1 Good advice is the reason
for my best investment
decision

2 Strong market/fortunate
timing is the reason for
my best investment
decision

3 My own skills and
intelligence is the reason
for my best investment
decision

4 My luck is the reason for
my best investment
decision

5 When I invest in a new
stock issue, I expect my
investment will give sure
gain of 50% of my
investment

6 When I invest in a new
stock issue, I expect 0.5
probability to gain 100%
and 0.5 probability to
lose 100%

74

PROSPECT THEORY:-
SITUATION 1
YOU HAVE RS. 1000 AND YOU MUST PICK ONE OF THE FOLLOWING CHOICES.
CHOICE A: YOU HAVE A 50%CHANCES OF GAINING RS. 1000 AND A 50%
CHANCES OF GAINING RS. 0
CHOICES B: YOU HAVE A 100% CHANCES OF GAINING RS. 500
1 I will choose, choice
A

2 I will choose, choice
B


SITUATION 2
YOU HAVE RS. 2000 AND YOU MUST PICK ONE OF THE FOLLOWING CHOICES.
CHOICE A: YOU HAVE A 50% CHANCES OF LOSSING RS. 1000 AND 50% CHANCES
OF LOSSING RS. 0
CHOICE B: YOU HAVE A 100% CHANCES OF LOSSING RS. 500
1 I will choose, choice
A

2 I will choose, choice
B



75

MENTAL ACCOUNTING:-
SITUATION 1
IMAGIN THAT YOU HAVE DECIDED TO WATCH A MOVIE WORTH Rs.250 PER
TICKET. AS YOU ENTER THE THEATER, YOU DISCOVER THAT YOU LOST YOUR
Rs. 250. WOULD YOU STILL PAY Rs. 250 FOR A TICKET TO MOVIE.
1 Yes, I will still pay Rs.
250 for a ticket

2 No, I will still pay Rs.
250 for a ticket


SITUATION 2
IMAGIN THAT YOU HAVE DECIDED TO WATCH A MOVIE AND HAVE PAID RS.250
FOR TICKET. AS YOU ENTER THE THEATER, YOU DISCOVER THAT YOU HAVE
LOST THE TICKET. THE SEAT WAS NOT MARKED AND THE TICKET CAN NOT BE
RECOVERED. WOULD YOU PAY RS. 250 FOR ANOTHER TICKET.
1 Yes, I will still buy
another ticket

2 No, I will still buy
another ticket





76

DECISION MAKING PROCESS
1 When I make decisions, I tend
to rely on my intuition
INTUITIVE
2 I rarely make important
decisions without consulting
other people
CONSULTATIVE
3 When I make a decision, it is
more important for me to feel
the decision is right than to
have a rational reason for it
ETHICAL
4 I double check my
information sources to be sure
I have the right facts before
making decisions
ETHICAL
5 I use the advice of other
people in making my
important decisions
CONSULTATIVE
6 I put off making decisions
because thinking about them
makes me uneasy
AVOIDENCE
7 I make decisions in a logical
and systematic way
RATIONAL
8 When making decisions I do
what feels natural at the
moment
INTUITIVE
77

9 I generally make snap
decisions
IMPULSIVE
10
I like to have someone steer
me in the right direction when
I an faced with important
decisions
CONSULTATIVE


11 My decision making requires
careful thought
RATIONAL
12 When making a decision, I
trust my inner feelings and
reactions
INTUITIVE
13 When making a decision, I
consider various options in
terms of a specified goal
RATIONAL
14 I avoid making important
decisions until the pressure is
on
AVOIDENCE
15 I often make impulsive
decisions
IMPULSIVE
16 When making decisions, I rely
upon my instincts
INTUITIVE
17
I generally make decisions
that feel right to me
ETHICAL
78

18 I often need the assistance of
other people when making
important decisions
CONSULTATIVE
19
I often make decisions on the
spur of the moment
IMPULSIVE
20
I postpone decision making
whenever possible
AVOIDENCE
21
I often put off making
important decisions
AVOIDENCE
22 If I have the support of others,
it is easier for me to make
important decisions
CONSULTATIVE
23
I generally make important
decisions at the last minute
IMPULSIVE
24
I make quick decisions
IMPULSIVE






79

NARROW FRAMING
SITUATION 1
IMAGIN THAT due to a factory closing 600 jobs were about to be lost. However, if
PROGRAM A : is adopted, 200 jobs will be saved.
PROGRAM B: is adopted, there is a 1/3 probability that 600 jobs will be saved and a 2/3
probability that none of the 600 jobs will be saved.
1 I will choose, program
A

2 I will choose, program
B


SITUATION 2
PROGRAM C: is adopted, 400 people will lose their jobs.
PROGRAM D: is adopted, there is a 1/3 probability that nobody will lose their job and a 2/3
probability that 600 will lose their job.
1 I will choose, program
C

2 I will choose, program
D




80

HEURISTIC
SITUATION 1
Imagine that you were shown a picture of two people, person A and person B.
Person A is well-dressed, wearing a fancy watch, and has a briefcase in his hand.
Person B is wearing jeans and flip-flops, looks as if he just woke up, and is busy texting on
his cell phone.
Now predict who is more likely to show up on time for the local monthly donation meeting,
who would you choose?
1 I will choose, person
A

2 I will choose, person B

SITUATION 2
A highly profitable software company is searching for its next CEO. They have narrowed
their search down to two candidates, one male and one female. This particular company has
never employed anyone but males in any of its leadership roles. Who would you predict they
will hire?
1 Company will hire
male CEO

2 Company will hire
female CEO



81

SITUATION 3
1 There are more words
that start with the letter
R

2 There are less words
that start with the letter
R

3 There are more
words that have 'r' as
the third letter


4 There are less words
that have 'r' as the
third letter











82

Cognitive Dissonance
1 if someone that you don't like does
something nice for you, you might
reconcile that by convincing yourselves
that she did the nice thing just to make
us feel guilty for not liking her.

2 If you know that smoking is bad, you
might justify the fact that you smoke
by saying that, if smoking doesn't kill
you, something else will.

3 When I shop something, later on I
regret my decision buying that stuff.

4 I am doing a job and I have to deal
with very rude people. I am able to
control my emotions and still conduct
my job.

5 I am doing a job and I have to deal
with very rude people. Sometimes I
am not able to control my emotions
and still conduct my job.







83

DISPOSSITION EFFECT AND ANCHORING
1 I sell my profitable
shares too early

2 Only in some
situations, I sell my
profitable shares too
early

3 I do not sell my
profitable shares too
early

4 Rarely, I sell my
profitable shares too
early

5 I keep holding my
loser shares in
excess.

6 I do not keep holding
my loser shares in
excess.

7 Rarely I keep
holding my loser
shares in excess.




84

ANNEXURE 2: DEMOGRAPHICS CODINGS
1 MALE 47
2 FEMALE 55

1 URBAN 80
2 RURAL 22

1 21-25 17
2 26-30 55
3 ABOVE 30 30

1
UPTO 2 LAKHS
0
2 2-3 LAKHS 11
3 3-4 LAKHS 66
4 MORE THAN 4 LAKHS 25

1 BANK FIXED DEPOSITS/LIFE INSURANC 34
2 SHARES AND MUTUAL FUND 32
3 REAL ESTATE/PROPERTY 25
4 OTHERS 11
85