Investor Behaviour

Financial markets frequently deviate from postulated efficiency, which is largely caused by the "irrationalities" of investors. This book contributes to the understanding of how investment strategies are driven by psychological forces. Two of the three presented studies provide evidence on the occurrence and consequences of egocentric biases, such as overconfidence and illusion of control. The third study provides a novel behavioural explanation for the equity home bias, an instance of internationally poorly diversified portfolios, based on social identity. The presented psychological phenomena can hardly be investigated with real financial market data. Hence, experimental methods are used to identify the fundamental cause-effect relationships in a controlled way. This book presents pieces of new evidence on decision making in the interdisciplinary field of economics, finance and psychology and provides insights into state-of-the-art experimental economics research.