Article Details
  • Published Online:
    December  2024
  • Product Name:
    The IUP Journal of Financial Risk Management
  • Product Type:
    Article
  • Product Code:
    IJFRM021224
  • Author Name:
    Rajkanesvar S and Srinivasan K
  • Availability:
    YES
  • Subject/Domain:
    Finance
  • Download Format:
    PDF
  • Pages:
    33-46
Volume 21, Issue 4, December 2024
Impact of Selected Personality Traits on Investment Decisions
Abstract

This study examines the role of personality traits in shaping investment decisions, focusing on the first three traits of the Big Five personality model—Openness, Conscientiousness, Extraversion, Agreeableness and Neuroticism. Using chi-square and ANOVA, the study explores how different traits correlate with financial behaviors, particularly in risk tolerance and investment preferences. Behavioral biases, such as overconfidence, loss aversion, sunk cost fallacy, emotional bias and representativeness bias, significantly impact decision-making. By leveraging insights from behavioral finance, the study offers valuable guidance to investors and financial professionals in developing personality-based investment strategies.

Introduction

Investment decisions are influenced not only by market conditions but also by psychological and behavioral factors. Behavioral finance explores these psychological influences on financial decision-making, highlighting cognitive biases that cause deviations from rational decisionmaking (Thaler, 1999). Among these factors, personality traits play a crucial role in shaping investors’ risk preferences, asset allocation, and trading behaviors (Shefrin and Statman, 2000).