JEFMS Journal

ABSTRACT:

This study aims to analyze the impact of Overconfidence Bias, Representativeness Bias, and Herding towards investment decision making through Risk Tolerance, where psychological and social factors could have effect on the investors' decision making process. The sample was gathered using Snowball Sampling technique on 200 stock investors who have made transactions in the Indonesian Stock Exchange. The data was analyzed using SEM PLS with Smart PLS 3.2.9 application. The result shows that Overconfidence Bias and Representativeness Bias have significant impact on both direct and indirect investment decision making process through Risk Tolerance. On the other hand, Herding shows no effect on direct and indirect investment decision making process through Risk Tolerance.

KEYWORDS:

overconfidence, representativeness, herding, risk tolerance, investment decision, financial behaviour

REFERENCES:

1) V. Ricciardi and H. K. Simon, “What Is Behavioral Finance?,” Behav. Financ. Wealth Manag., pp. 3–21, 2015, doi: 10.1002/9781119202400.ch1.

2) M. Pompian, Behavioral Finance and Wealth Management, 2nd ed. New Jersey: Wiley Finance, 2012.

3) [I. G. Adiputra, “The Influence of Overconfidence , Representative Bias , and Risk Tolerance in Investment Decision Making : Evidence on Stock Investors in Indonesia 的证据,” J. Hunan Univ. (Natural Sci., vol. 48, no. April, pp. 195–205, 2021.

4) N. S. Nur Aini and L. Lutfi, “The influence of risk perception, risk tolerance, overconfidence, and loss aversion towards investment decision making,” J. Econ. Bus. Account. Ventur., vol. 21, no. 3, p. 401, 2019, doi: 10.14414/jebav.v21i3.1663.

5) M. Qasim, R. Y. Hussain, I. Mehboob, and M. Arshad, “Impact of herding behavior and overconfidence bias on investors’ decision-making in Pakistan,” Accounting, vol. 5, no. 2, pp. 81–90, 2019, doi: 10.5267/j.ac.2018.7.001.

6) S. U. Qadri and M. Shabbir, “An empirical study of overconfidence and illusion of control biases, Impact on investor’s decision making: an evidence from ISE,” Eur. J. Bus. Manag., vol. 6, no. 14, pp. 38–44, 2014.

7) D. T. B. Dr. Taqqadus Bashir, “‘Impact of Behavioral Biases on Investors Decision Making: Male Vs Female,’” IOSR J. Bus. Manag., vol. 10, no. 3, pp. 60–68, 2013, doi: 10.9790/487x-1036068.

8) Lathifatunnisa and A. Nur Wahyuni, “Pengaruh Faktor Demografi, Risk Tolerance Dan Overconfidence Terhadap Pengambilan Keputusan Investasi Mahasiswa Di Kota Pekalongan,” J. Bisnis Terap., vol. 5, no. 2, pp. 203–216, 2021, doi: 10.24123/jbt.v5i2.4688.

9) C. Candy and K. Vincent, “Analisis Pengaruh Behavioural Finance Terhadap Pengambilan Keputusan Investasi Investor di Kepulauan Riau,” Jesya (Jurnal Ekon. Ekon. Syariah), vol. 4, no. 2, pp. 864–873, 2021, doi: 10.36778/jesya.v4i2.403.

10) S. Irshad, W. Badshah, Z. Ali, S. Mighri, M. Badshah, and U. Hakam, “Management and Administrative Sciences Review Effect of Representativeness Bias on Investment Decision Making Fact ors Affect ing Short-Term Invest ment Int ensions of St ock Invest ors in Pakist an Effect of Representativeness Bias on Investment Decision,” Manag. Adm. Sci. Rev., vol. 5, no. 1, pp. 26–30, 2016, [Online]. Available: www.absronline.org/journals

11) Y. R. Sihombing and R. S. A. Prameswary, “The Effect of Overconfidence Bias and Representativeness Bias on Investment Decision With Risk Tolerance as Mediating Variable,” Indik. J. Ilm. Manaj. dan Bisnis, vol. 7, no. 1, p. 1, 2023, doi: 10.22441/indikator.v7i1.18396.

12) B. Fischhoff, “Risk Analysis and Human Behavior,” Risk Anal. Hum. Behav., vol. 15, no. 6, pp. 1–432, 2013, doi: 10.4324/9780203140710.

13) V. Vitmiasih, S. N. Maharani, and D. Narullia, “Pengambilan Keputusan Investasi Rasional: Suatu Tinjauan dari Dampak Perilaku Representativeness Bias dan Hearding Effect,” Jati J. Akunt. Terap. Indones., vol. 4, no. 1, pp. 1–13, 2021, doi: 10.18196/jati.v4i1.9255.

14) D. Puspawati and A. R. Yohanda, “Bias Perilaku Pada Keputusan Investasi Generasi Muda,” Akuntabilitas, vol. 16, no. 1, pp. 41–60, 2022, doi: 10.29259/ja.v16i1.15724.

15) J. Willyanto, G. V. Wijaya, and U. K. Petra, “Pengaruh Bias Terhadap Keputusan Investasi Saham pada Investor Muda di Surabaya,” J. Akunt. dan Pajak, vol. 22, no. 02, pp. 732–740, 2019, [Online]. Available: http://jurnal.stie- aas.ac.id/index.php/jap

16) A. Risman, E. Prowanta, and I. Siswanti, Behavioral Corporate Finance. Penerbit KBM Indonesia, 2021.

17) I. W. Rona and N. K. Sinarwati, “Pengaruh Herding Bias dan Overconfidence Bias terhadap Pengambilan Keputusan Investasi,” Stud. Akunt. dan Keuang. Indones., vol. 4, no. 2, pp. 104–130, 2021, doi: 10.21632/saki.4.2.104-130.

18) R. J. Min Jannah, “Pengaruh Herding dan Overconfidence Bias Terhadap Pengambilan Keputusan Investasi,” Mercubuana University Institutional Repository, 2019.

19) Y. C. Setiawan, A. D. R. Atahau, and R. Robiyanto, “Cognitive Dissonance Bias, Overconfidence Bias dan Herding Bias dalam Pengambilan Keputusan Investasi Saham,” AFRE (Accounting Financ. Rev., vol. 1, no. 1, pp. 17–25, 2018, doi: 10.26905/afr.v1i1.1745.

20) D. Ayu Wulandari and R. Iramani, “Studi Experienced Regret, Risk Tolerance, Overconfidance Dan Risk Perception Pada Pengambilan Keputusan Investasi,” J. Bus. Bank., vol. 4, no. 1, p. 55, 2014, doi: 10.14414/jbb.v4i1.293.

21) C. Chang, J. Jiang, and K. A. Kim, “A test of the representativeness bias effect on stock prices: A study of Super Bowl commercial likeability,” Econ. Lett., vol. 103, no. 1, pp. 49–51, 2009, doi: 10.1016/j.econlet.2009.01.018.

22) J. Budiman and Patricia, “Pengaruh Overconfidence Bias, Herding Bias, Representativeness Bias, Loss Aversion, dan Risk perception terhadap Investment Decision di Kota Batam,” CoMBInES, vol. 1, no. 1, pp. 1979–1987, 2021.

23) J. Budiman, “Pendekatan Perilaku Keuangan Terhadap Keputusan Investasi Emas,” Profit, vol. 14, no. 01, pp. 63–68, 2020, doi: 10.21776/ub.profit.2020.014.01.7.

24) R. A. Wijaya, “Analisis Pengaruh Herding dan Overconfidence Bias Terhadap Keputusan Investasi,” Mercubuana University Institutional Repository, 2019.

25) F. N. Ramdani, “Analisis Pengaruh Representativeness Bias Dan Herding Behavior Terhadap Keputusan Investasi (Studi Pada Mahasiswa Di Yogyakarta),” Bisnis, vol. 1999, no. December, pp. 1–6, 2018.

26) H. Hikmah, M. Siagian, and P. Siregar, “Analisis Tingkat Literasi Keuangan, Experienced Regret, dan Risk Tolerance pada Keputusan Investasi di Batam,” Jesya (Jurnal Ekon. Ekon. Syariah), vol. 3, no. 1, pp. 138–146, 2020, doi: 10.36778/jesya.v3i1.142.

27) I. S. Baird and H. Thomas, “Toward a Contingency Model of Strategic Risk Taking,” Acad. Manag. Rev., vol. 10, no. 2, pp. 230–243, 1985, doi: 10.5465/amr.1985.4278108.

28) P. Slovic and E. Peters, “Risk perception and affect,” Curr. Dir. Psychol. Sci., vol. 15, no. 6, pp. 322–325, 2006, doi: 10.1111/j.1467-8721.2006.00461.x.

29) O. Pak and M. Mahmood, “Impact of personality on risk tolerance and investment decisions: A study on potential investors of Kazakhstan,” Int. J. Commer. Manag., vol. 25, no. 4, pp. 370–384, 2015, doi: 10.1108/IJCoMA-01-2013- 0002.

30) P. Rahmadianti, H. A. Asroi, and L. Sevriana, “Pengaruh Financial Literacy dan Risk Tolerance terhadap Pengambilan Keputusan Investasi,” Pros. Manaj., pp. 369–372, 2021.

31) D. Masruroh et al., “Pengaruh Risk Tolerance Terhadap Keputusan Mahasiswa Surabaya Berinvestasi Dengan Financial Literacy Sebagai Variabel Moderasi,” J. Akunt. dan Ekon., vol. 6, no. 3, pp. 32–39, 2021, doi: 10.29407/jae.v6i3.16155.

32) Ni Putu Priscilia Kartika Dewi and A. Krisnawati, “Pengaruh Financial Literacy, Risk Tolerance Dan Overconfidence Terhadap Pengambilan Keputusan Investasi Pada Usia Produktif Di Kota Bandung,” J. Mitra Manaj., vol. 4, no. 2, pp. 236–250, 2020, doi: 10.52160/ejmm.v4i2.344.

33) A. Risman, A. J. Ali, M. Soelton, and I. Siswanti, “The behavioral finance of MSMEs in the advancement of financial inclusion and financial technology ( fintech ),” vol. 13, no. 1, pp. 91–101, 2023, doi: 10.14414/tiar.v13i1.3213.

34) J. Howard, “Representativeness Bias,” Cogn. Errors Diagnostic Mistakes, vol. 14, no. 1, pp. 425–443, 2019, doi: 10.1007/978-3-319-93224-8_24.