The relationship between the income and behavioural biases


  • Renu Isidore R Loyola Institute of Business Administration, Chennai, Tamil Nadu, India
  • Christie P Loyola Institute of Business Administration, Chennai, Tamil Nadu, India


Mental accounting, Anchoring, Gambler’s fallacy, Availability, Loss aversion, Regret aversion, Representativeness, Overconfidence


Purpose. The purpose of this paper is to test the relationship between the annual income earned by the investors and eight behavioural biases exhibited by the investors such as mental accounting, anchoring, gambler’s fallacy, availability, loss aversion, regret aversion, representativeness and overconfidence.

Design/methodology/approach. The relationship is derived based on a questionnaire survey conducted on 436 secondary equity investors residing in Chennai, India.

Findings. Analysis of variance test was performed on the normalised and non-normalised version of the biases divided in terms of the annual income earned by the investor. The test found that for the significant biases except the overconfidence bias, the investors with higher annual income were less prone to the biases when compared to investors with lower annual income. On the other hand, with respect to the overconfidence bias, the investors with higher annual income were prone to exhibit overconfidence bias when compared to the investors with lower annual income. Correlation analysis showed that the investors with high annual income were more likely to exhibit higher overconfidence bias but lower representativeness, loss aversion, availability and mental accounting biases.

Originality/value. A contribution in the financial and economic front which would benefit the financial advisors to now consider the income earned by the clients as an important factor while giving financial advice to the clients and while guiding them about the biases they are prone to exhibit.



Download data is not yet available.


Ahmad, M.H., Atiq, Z., Alam, S. and Butt, M.S. (2006), “The impact of demography, growth and public policy on household saving: a case study of Pakistan”, Asia Pacific Development Journal, Vol. 13 No. 2, pp. 57-72.

Beal, D.J. and Delpachitra, S.B. (2003), “Financial literacy among Australian University students”, Economic Papers: A Journal of Applied Economics and Policy, Vol. 22 No. 1, pp. 65-78.

Bhabha, J.I., Kundi, G.M., Qureshi, Q.A., Khan, S. and Nawaz, A. (2014), “Factors affecting the attitude of working-women towards saving-investment in developing countries”, Journal of Economics and Sustainable Development, Vol. 5 No. 11, pp. 36-41.

Bhatt, K.A. and Bhatt, K. (2012), “Effects of investor occupation and education on choice of investment: an empirical study in India”, International Journal of Management, Vol. 29 No. 4, pp. 439-454.

Bujan, I., Cerović, L. and DukićSamaržija, N. (2016), “Socio demographic determinants of financial literacy of the citizens of the Republic of Croatia”, Ekonomskipregled, Vol. 67 No. 3, pp. 206-226.

Chandra, A. (2008), “Decision making in the stock market: incorporating psychology with finance”, paper presented at the National Conference on Forecasting Financial Markets of India, 29 December, IIT Kharagpur, Kharagpur, available at:

Chandra, A. (2009), “Individual investors’ trading behaviour and the competence effect”, IUP Journal of Behavioural Finance, Vol. 6 No. 1, pp. 56-70.

Chandra, A. and Kumar, R. (2012), “Factors influencing Indian individual investor behaviour: survey evidence”, Decision, Vol. 39 No. 3, pp. 141-167.

Chitra, K. and Sreedevi, V.R. (2011), “Does personality traits influence the choice of investment?”, IUP Journal of Behavioural Finance, Vol. 8 No. 2, pp. 47-57.

Cianci, A.M. (2008), “The impact of investor status on investors’ evaluation of negative and positive, separate and combined information”, The Journal of Behavioural Finance, Vol. 9 No. 3, pp. 117-131.

De Clercq, B. and Venter, J.M.P. (2009), “Factors influencing a prospective chartered accountant’s level of financial literacy: an exploratory study”, Meditari Accountancy Research, Vol. 17 No. 2, pp. 47-60.

Dhar, R. and Zhu, N. (2006), “Up close and personal: investor sophistication and the disposition effect”, Management Science, Vol. 52 No. 5, pp. 726-740.

Donkers, B. and Van Soest, A. (1999), “Subjective measures of household preferences and financial decisions”, Journal of Economic Psychology, Vol. 20 No. 6, pp. 613-642.

Donkers, B., Melenberg, B. and Van Soest, A. (2001), “Estimating risk attitudes using lotteries: alarge sample approach”, Journal of Risk and Uncertainty, Vol. 22 No. 2, pp. 165-195.

Fama, E.F. (1965a), “Random walks in stock market prices”, Financial Analysts Journal, Vol. 21 No. 5, pp. 55-59.

Fama, E.F. (1965b), “The behavior of stock-market prices”, The Journal of Business, Vol. 38 No. 1, pp. 34-105.

Fama, E.F. (1970), “Efficient capital markets: a review of theory and empirical work”, The Journal of Finance, Vol. 25 No. 2, pp. 383-417.

Faridi, M.Z. and Bashir, F. (2010), “Households saving behaviour in Pakistan: a case of Multan district”, Pakistan Journal of Social Sciences (PJSS), Vol. 30 No. 1, pp. 17-29.

Foerster, S. (2011), “Double then nothing: why stock investments relying on simple heuristics may disappoint”, Review of Behavioural Finance, Vol. 3 No. 2, pp. 115-140.

Fu, H. (2006), “Effects of financial information transparency on investor behavior in Taiwan stock market”, Order No 3223496, available from ABI/INFORM Collection. (304911821), available at: (accessed 26 September 2018).

Gabaix, X. and Laibson, D. (2000), “A boundedly rational decision algorithm”, American Economic Review, Vol. 90 No. 2, pp. 433-438.

Geetha, S.N. and Vimala, K. (2014), “Perception of household individual investors towards selected financial investment avenues (with reference to investors in Chennai city)”, Procedia Economics and Finance, Vol. 11, pp. 360-374.

Goetzmann, W.N. and Kumar, A. (2008), “Equity portfolio diversification”, Review of Finance, Vol. 12 No. 3, pp. 433-463.

Gupta, N. and Sharma, A. (2016), “A study on factors effecting the satisfaction level of mutual funds investors in Jaipur city”, SAMVAD, Vol. 12, pp. 80-84.

Hayat, M.A., Bukhari, K. and Ghufran, B. (2010), “Understanding investment behavior of individual investors: how they handle investment decisions? Do they act rationally?”, unpublished doctoral dissertation, Institute of Management Science, Bahauddin Zakariya University, Multan.

Islamoğlu, M., Apan, M. and Ayvali, A. (2015), “Determination of factors affecting individual investor behaviours: a study on bankers”, International Journal of Economics and Financial Issues, Vol. 5 No. 2, pp. 531-543.

Jayaraj, S. (2013), “The factor model for determining the individual investment behavior in India”, Journal of Economics and Finance, Vol. 1 No. 4, pp. 21-32.

Kannadhasan, M. (2006), “Risk appetite and attitudes of retail investors with special reference to Capital market”, The Management Accountant, pp. 448-454.

Kumar, A. (2009), “Hard-to-value stocks, behavioral biases, and informed trading”, Journal of Financial and Quantitative Analysis, Vol. 44 No. 6, pp. 1375-1401.

Kumar, V.R. and Kasilingam, R. (2017), “Does the demographics and selected investor profile factors influence financial literacy? An investor perception study”, Sumedha Journal of Management, Vol. 6 No. 2, pp. 75-89.

Markowitz, H. (1952), “Portfolio selection”, The Journal of Finance, Vol. 7 No. 1, pp. 77-91.

Mathur, S. and Rastogi, A. (2018), “Investor sentiment and asset returns: the case of Indian stock market”, Afro-Asian Journal of Finance and Accounting, Vol. 8 No. 1, pp. 48-64.

Miller, G.A. (1956), “The magical number seven, plus or minus two: some limits on our capacity for processing information”, Psychological Review, Vol. 63 No. 2, pp. 81-97.

Mittal, M. and Vyas, R.K. (2008), “Personality type and investment choice: an empirical study”, The ICFAI University Journal of Behavioral Finance, Vol. 5 No. 3, pp. 7-22.

Phung, A. (2010), “Behavioral finance”, available at: (accessed 26 September 2018).

Ramanathan, K.V. and Meenakshisundaram, K.S. (2015), “A study of the investment pattern of bank employees”, Proceedings of International Conference on Management Finance Economics, pp. 156-162.

Rana, H.M., Khan, J. and Baig, A.A. (2014), “Information searches as a mediator between income and risky decision-making behavior and influence of education on risky decision-making behavior: a study from Pakistan”, The Business and Management Review, Vol. 4 No. 3, pp. 81-93.

Ranjith, V.K. (2002), “Risk preference of investors in the city of Ahmedabad”, Finance India, Vol. 16 No. 2, pp. 531-539.

Riley, W.B., Jr and Chow, K.V. (1992), “Asset allocation and individual risk aversion”, Financial Analysts Journal, Vol. 48 No. 6, pp. 32-37.

Sahi, S.K., Arora, A.P. and Dhameja, N. (2013), “An exploratory inquiry into the psychological biases in financial investment behavior”, Journal of Behavioral Finance, Vol. 14 No. 2, pp. 94-103.

Sharpe, W.F. (1964), “Capital asset prices: atheory of market equilibrium under conditions of risk”, The Journal of Finance, Vol. 19 No. 3, pp. 425-442.

Shiller, R.J. (1999), “Human behavior and the efficiency of the financial system”, Handbook of Macroeconomics, Vol. 1, pp. 1305-1340.

Shum, P. and Faig, M. (2006), “What explains household stock holdings?”, Journal of Banking and Finance, Vol. 30 No. 9, pp. 2579-2597.

Simon, H.A. (1979), “Rational decision making in business organizations”, The American Economic Review, Vol. 69 No. 4, pp. 493-513.

Simon, H.A. and Newell, A. (1971), “Human problem solving: the state of the theory in 1970”, American Psychologist, Vol. 26 No. 2, pp. 145-159.

Sood, P.B. and Medury, Y. (2012), “Investment preferences of salaried individuals towards financial products”, International Journal of Management and Behavioural Sciences, Vol. 1 No. 1, pp. 95-107.

Suman, C. and Sabat, K.D. (2012), “A study of saving and investment behaviour of individual households: an empirical evidence from Orissa”, RJEBS, Vol. 2 No. 1, pp. 24-33.

Sung, J. and Hanna, S. (1996), “Factors related to risk tolerance”, Journal of Financial Counseling and Planning, Vol. 7, pp. 11-19.

Thaler, R.H. (Ed.) (2005), Advances in Behavioral Finance, Princeton University Press, Upper Saddle River, NJ.

Thulasipriya, B. (2015), “A study on the investment preference of government employees on various investment avenues”, International Journal of Management Research and Social Science (IJMRSS, ), Vol. 2 No. 1, pp. 9-16.

Tirupathi, T. and Ignatius, A. (2013), “A study on preferred investment avenues among salaried peoples with reference to Namakkal Taluk, Tamilnadu”, Trends and Challenges in Global Business Management, pp. 90-94.

Tseng, S. and Yang, C. (2011), “Influence of information search on risky investment preferences: testing a moderating role of income”, Proceedings of the 3rd International Conference on Information and Financial Engineeringin Singapore, Vol. 12, pp. 452-456.

Tversky, A. and Kahneman, D. (1974), “Judgment under uncertainty: heuristics and biases”, Science (New York, N.Y.), Vol. 185 No. 4157, pp. 1124-1131.

Umamaheswari, S. and Kumar, M.A. (2014), “A special study on Coimbatore based salaried investors’ awareness, attitude, expectation and satisfaction over their investments”, Impact: International Journal of Research in Business Management, Vol. 2 No. 2, pp. 99-108.

Vaidehi, R. and Vijayakumar, J.G. (2016), “A study on equity investment motives and styles of individual investors”, Journal of Exclusive Management Science, Vol. 5 No. 2, pp. 1-10.

Velmurugan, G., Selvam, V. and Nazar, N.A. (2015), “An empirical analysis on perception of investors’ towards various investment avenues”, Mediterranean Journal of Social Sciences, Vol. 6 No. 4, pp. 427-435.

Waweru, N.M., Munyoki, E. and Uliana, E. (2008), “The effects of behavioral factors in investment decision-making: asurvey of institutional investors operating at the Nairobi stock exchange”, International Journal of Business and Emerging Markets, Vol. 1 No. 1, pp. 24-41.

Waweru, N.M., Mwangi, G.G. and Parkinson, J.M. (2014), “Behavioural factors influencing investment decisions in the Kenyan property market”, Afro-Asian Journal of Finance and Accounting, Vol. 4 No. 1, pp. 26-49.

Zhu, N. (2003), “Investor behavior, differential information, and asset pricing”, Order No. 3109486, available from ABI/INFORM Collection, (304737089), available at: (accessed 26 September 2018).




How to Cite

Isidore R, R. ., & P, C. . (2019). The relationship between the income and behavioural biases. Journal of Economics, Finance and Administrative Science, 24(47), 127–144. Retrieved from