Open Access

Patrick Pohl

• By researching the influence of heuristics and biases on investment decisions and performance of investors in the exchange, this paper contributes to the field of behavioral finance. The paper adopts a generalized perspective on investors and markets in the exchange and provides insights into investors’ decision-making behavior that challenge the traditional assumption of perfectly rational market agents. Thus, it presents statistically significant evidence that investors may not resemble the concept of perfect rationality, as they use heuristics and comply with the prospect theory in investment decisions. Therefore, these decisions are shaped by systematic errors known as biases. The paper’s focus comprises the heuristics of availability, representativeness and anchoring and adjustment as well as the prospect theory. These psychological concepts are investigated for their impact on investment decisions and for subsequent effects on investors’ performances. The investment performance, for this purpose, is measured by investors’ returns. In addition, these psychological elements are studied comparatively to detect interrelations between them and to identify differences in the magnitude with which they influence investment decisions of distinct groups of investors. The paper involves an analysis of quantitative primary data collected by an international survey. Thus, a sample of 297 investors with different characteristics is analyzed. Although the study reveals that investors in the exchange behave according to the considered psychological elements in their investment decisions without differences between groups, it does not show that this entails performance-inhibiting consequences. However, a negative relationship between the investors’ age and their compliance with these elements is found.