Individual Differences in Investor Decision-making: Examining Representativeness Heuristics and Cognitive Reflection
Due to limited cognitive resources, investors often utilize mental shortcuts to make quick judgments. This study examines the impact of representativeness heuristics (Conjunction Fallacy, Gambler's Fallacy, and Stereotypes) and the Cognitive Reflection Test (CRT) on investor decision-making. Th...
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| Format: | Article |
| Language: | English |
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Ferdowsi University of Mashhad
2023-12-01
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| Series: | Iranian Journal of Accounting, Auditing & Finance |
| Subjects: | |
| Online Access: | https://ijaaf.um.ac.ir/article_43844_19bc21a13a6a3587f524fa2d01a46979.pdf |
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| author | Ruhollah Amareh Esfandyar Malekian Hossein Fakhari |
| author_facet | Ruhollah Amareh Esfandyar Malekian Hossein Fakhari |
| author_sort | Ruhollah Amareh |
| collection | DOAJ |
| description | Due to limited cognitive resources, investors often utilize mental shortcuts to make quick judgments. This study examines the impact of representativeness heuristics (Conjunction Fallacy, Gambler's Fallacy, and Stereotypes) and the Cognitive Reflection Test (CRT) on investor decision-making. The population of this study consists of a sample of investors in the Tehran Stock Exchange. The study employs a Chi-Square test (χ^2) to explore the relationship between heuristics and CRT, along with T-tests, one-way ANOVA, and correlation analyses to identify individual differences. Results indicate that proper utilization of cognitive resources can partially prevent the Conjunction Fallacy from occurring. Moreover, investors tend to consider the high probability of consecutive results for an event regardless of cognitive resource usage. Interestingly, this study also found that investors with lower CRT scores made decisions less influenced by stereotypes. We conclude that reducing the impact of representativeness heuristics can be achieved through knowledge and experience gained from similar situations and appropriately utilizing cognitive resources. |
| format | Article |
| id | doaj-art-8fb38476413140e08edcb82c0d939ccd |
| institution | OA Journals |
| issn | 2717-4131 2588-6142 |
| language | English |
| publishDate | 2023-12-01 |
| publisher | Ferdowsi University of Mashhad |
| record_format | Article |
| series | Iranian Journal of Accounting, Auditing & Finance |
| spelling | doaj-art-8fb38476413140e08edcb82c0d939ccd2025-08-20T02:00:12ZengFerdowsi University of MashhadIranian Journal of Accounting, Auditing & Finance2717-41312588-61422023-12-017410912110.22067/ijaaf.2023.43844.131043844Individual Differences in Investor Decision-making: Examining Representativeness Heuristics and Cognitive ReflectionRuhollah Amareh0Esfandyar Malekian1Hossein Fakhari2Department of Accounting, Faculty of Economics and Administrative Sciences, University of Mazandaran, Babolsar, Iran.Department of Accounting, Faculty of Economics and Administrative Sciences, University of Mazandaran, Babolsar, IranDepartment of Accounting, Faculty of Economics and Administrative Sciences, University of Mazandaran, Babolsar, IranDue to limited cognitive resources, investors often utilize mental shortcuts to make quick judgments. This study examines the impact of representativeness heuristics (Conjunction Fallacy, Gambler's Fallacy, and Stereotypes) and the Cognitive Reflection Test (CRT) on investor decision-making. The population of this study consists of a sample of investors in the Tehran Stock Exchange. The study employs a Chi-Square test (χ^2) to explore the relationship between heuristics and CRT, along with T-tests, one-way ANOVA, and correlation analyses to identify individual differences. Results indicate that proper utilization of cognitive resources can partially prevent the Conjunction Fallacy from occurring. Moreover, investors tend to consider the high probability of consecutive results for an event regardless of cognitive resource usage. Interestingly, this study also found that investors with lower CRT scores made decisions less influenced by stereotypes. We conclude that reducing the impact of representativeness heuristics can be achieved through knowledge and experience gained from similar situations and appropriately utilizing cognitive resources.https://ijaaf.um.ac.ir/article_43844_19bc21a13a6a3587f524fa2d01a46979.pdfrepresentativeness heuristic and conjunction fallacygambler’s fallacy and stereotypesand crt |
| spellingShingle | Ruhollah Amareh Esfandyar Malekian Hossein Fakhari Individual Differences in Investor Decision-making: Examining Representativeness Heuristics and Cognitive Reflection Iranian Journal of Accounting, Auditing & Finance representativeness heuristic and conjunction fallacy gambler’s fallacy and stereotypes and crt |
| title | Individual Differences in Investor Decision-making: Examining Representativeness Heuristics and Cognitive Reflection |
| title_full | Individual Differences in Investor Decision-making: Examining Representativeness Heuristics and Cognitive Reflection |
| title_fullStr | Individual Differences in Investor Decision-making: Examining Representativeness Heuristics and Cognitive Reflection |
| title_full_unstemmed | Individual Differences in Investor Decision-making: Examining Representativeness Heuristics and Cognitive Reflection |
| title_short | Individual Differences in Investor Decision-making: Examining Representativeness Heuristics and Cognitive Reflection |
| title_sort | individual differences in investor decision making examining representativeness heuristics and cognitive reflection |
| topic | representativeness heuristic and conjunction fallacy gambler’s fallacy and stereotypes and crt |
| url | https://ijaaf.um.ac.ir/article_43844_19bc21a13a6a3587f524fa2d01a46979.pdf |
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