Cognitive biases in investment behavior: The role of overconfidence, Illusion of control, and demographic moderators

Cognitive biases and errors in investment decisions are inevitable. This study analyzed the impact of cognitive biases, such as overconfidence and Illusion of control, on investment decisions. In addition, we looked into demographics (income, age, education) as a moderator on investments. The data were collected from active investors on the Pakistan Stock Exchange through a structured survey. Study employed robust Andrew Hayees regression analysis techniques. Findings show overconfidence bias and illusion of control bias influences investment decision making. Using data driven investment strategies and expert advice, the study recommends ways to reduce the impact of cognitive biases. Investor's ages and income act as moderator between overconfidence bias and investment decision. This study comes up with the findings that contribute to behavioral finance by quantifying the effect of cognitive bias on the investment decisions on investors in Pakistan's Stock Exchange.