The Impact of Behavioral Finance on Lebanese Investors’ Decision Making

Abstract

The inability of the traditional expected utility maximization of rational investors (within the efficient markets Framework) to explain many empirical patterns; was the main stimulus beyond the appearance for another track to resolve and analyze this inconsistency; through combining behavioral and cognitive psychological theory together where Behavioral Finance is known mainly as the irrational part that deals with investors’ Sentimental side. Furthermore it can be agreed on that behavioral finance is considered as “Subjective judgement” where ideas and decisions cannot be transmitted to other’s knowledge, as each one acts from his own point of interest; unlike conventional finance paradigm. Therefore, this paper seeks to determine the main behavioral errors or biases that are faced mainly by the Lebanese individual investor during decision making process. Results obtained by analyzing 211 questionnaires through SPSS software to develop a Structural equation model. Findings prove that Over Confidence and regret aversion are the main behavioral biases that control the Lebanese individual investors’ decision making.