The relationship between behavioral bias and personal investment decisions

This thesis discusses the relationship between behavioral bias and personal investment decisions. Researchers and economists until psychology enters the field of finance. They saw people only as rational beings and did not give importance to emotional and spiritual states, but investors are also affected by environmental conditions, emotional and spiritual states. As a result, they make wrong decisions and suffer losses. Wrong decisions and losses were investigated and their reasons were tried to be found. Although an answer was tried to be found through the developed theories, a solution could not be found because it was ignored that people were affected by internal and external factors. After Adam Smith explained that "economic behavior depends on interest and interests", he defined loss prevention and showed that emotions and thoughts are also effective in the field of economy, and in the next process, Kahneman and Tversky formed the basis by considering them together with internal and external factors. It has not been possible to reach a definite conclusion in this area where classical economic theory is also investigated. Prospect theory, on the other hand, offered a different perspective and argued that the psychology of investors is important. The introduction of psychology to economics has divided economists into two parts. Critics argued that this would move economics away from the positive sciences. In expected utility theory, utilities are compared under rational behaviour and the most profitable of them is preferred. Against the idea that rational action reduces harm, expectancy theory argued that human psychology should be consulted. Although the results were positive in periods when investments were damaged, studies were carried out, but no problems were found. At this stage, human psychology and instincts are discussed. This new approach, which is being promoted, has spawned "behavioral finance" and has become the subject of research on human psychology, emotional and mental states. Today this is one of the most discussed topics. Investors, like all people, are affected by the past, their moods, emotional tendencies, and uncertainty, and therefore they may make wrong decisions. Behavioural finance focuses more on the behaviour and characteristics of individual investors. Since individual investors are different from institutional investors and their market perceptions in general, their thoughts about risk and return are not as rational and professional as institutional investors, and their decisions are influenced by psychological, demographic and socio-economic factors. Over time, it has become very important in studies that the cause of errors, irrational choices and anomalies in the investment decisions of investors may be caused by human psychology. Because investment preferences include cognitive defects and psychological biases, there are errors in intuition. Therefore, it can be said that behavioural finance expands the rationality assumptions accepted as data in all cases of traditional finance models and wants to reveal the irrationality in financial markets. Behavioural finance includes the inclusion of behavioural sciences such as sociology and psychology in the studies in the field of finance and economics, making new observations outside of expected utility theory and rational behaviour patterns and explaining the issues that conflict with traditional theories. In the field of behavioural finance, it is seen that the psychological and behavioural characteristics of individuals are mostly discussed based on investors and are the subject of research. However, it is seen that the behavioural characteristics of individuals can also be effective in the decisions taken by other financial actors such as institutional investors, managers, intermediary institutions, portfolio managers. Baker, Ruback, and Wurgler (2004), in their study, reduce the field of behavioural finance to two dimensions. It is the factors that affect the investor decision-making process or the effect of the behavioural characteristics of the investors on the decisions they make. The second dimension is the effect of behavioural biases or managerial biases, which have an impact on the decisions of company managers concerning their companies, on company decisions. Studies carried out in the fields of psychology, sociology, behavioural science and finance show that the attitudes and behaviours of people in important decision areas in daily life are more illogical. There are basically two facts that cause individuals to deviate from rational decisions in the decision-making stages. These are heuristics and prejudices. Behavioural finance, which is expressed as the psychology of financial decision making, examines the role of heuristic and bias factors on financial decisions. From this point of view, behavioural finance investigates the effects of behavioural factors on individuals' financial decision processes based on the results of psychological research. The aim of this study is to investigate the effect of behavioral biases on individual investor decisions. In this study, the theoretical framework on the subject has been revealed by making a literature review and the role of heuristics (intuitions) and prejudices in financial decisions has been examined within the framework of behavioural finance discipline. The study was carried out by interviewing 360 individual investors. In order to measure the financial literacy levels of the survey participants, financial questions consisting of 8 questions were asked and 0-3. It is assumed that those who answer questions correctly do not have financial information, and those who answer questions 4-8 correctly have financial information. As a result, the relationship between financial literacy level and behavioural bias was examined. When the relationship between behavioural biases and demographic characteristics was examined, it was concluded that there was a significant relationship between representational bias and gender, while there was no significant relationship between other tendencies and gender variable. When the relationship between behavioural biases and age variable was examined, it was found that there was no significant relationship. When the relationship between the marital status variable and behavioural bias was examined, it was seen that the relationship was not significant. While a correlation was observed between conservatism, self-confidence, self-loading tendency and graduation rate, no relationship was found between representativeness, over-optimism and herd behaviour and graduation rate.