Heuristics: Behavioural Biases making Investor Irrational Dr. Aggarwal Sandeep* Assistant Professor, Maharshi Dayanand University, Rohtak, Haryana, 124001, India *Corresponding Author: Dr. Sandeep Aggarwal, Assistant Professor, Maharshi Dayanand University, Rohtak, Haryana, 124001, India. E-mail: sggarwal@gmail.com
Online published on 2 July, 2019. Abstract Humans, being the social creatures with unique value and beliefs are muddled among the fundamentals of investment, logic, rules, mathematics of investment on one side and with their social obligations, needs, fear, greed and emotions on the other end. It cannot be expected from humans to reach at a decision entirely on the basis of objective factors, rather the issues such as their behaviour and mood are the major predictors in shaping their decisions. There are number of internal and external stimulants that persuade individuals to take action. In psychology, we call this interaction of stimulants with the name, behaviour. Thus, the term behaviour is defined as the mode of action, or the way humans react. An enormous amount of information hits human brains every moment, round the clock a day. Even with the most developed and analytical brain, humans find it impossible to analyze and interpret the sea of information available to them in real time. That is why the human mind reacts very selectively to the information it takes in. Shortcuts and even rules of thumb is applied to arrive at conclusions; assess the likelihood of particular outcomes; to evaluate potential risks and rewards of an action or situation. These shortcuts are often based on familiarity, intuitions, immediate past experience; ease with which one can recall the events and it may even be guided by the action of mob. However, such shortcut often leads to biased decisions and motivate people to act in apparently irrational ways. People often use such shortcuts in financial decisions, which may lead to bias investment and other financial decisions. The branch of finance that studies the influence of behavioural biases on financial decisions is known as behavioural finance. This paper discusses the theoretical foundation of one of the key element of Behavioural Finance known as Heuristic. It is discussed in detail how the key heuristic variables can make an individual investor an irrational one if not controlled on time. Top Keywords Heuristics, Investor Irrational. Top |