Behavioural factors related to individual investment decisions in South Africa

Abstract

This study sought to explore the behavioural factors influencing risk-return awareness in individual investor decision-making on the JSE. The factors under examination included overconfidence, herding, anchoring, and availability. Additionally, the study investigated risk tolerance and its relationship with investor decision-making. A Likert-type survey, hosted on Qualtrics, was designed and distributed to potential participants who were active investors on the JSE. With 301 participants, the survey achieved a 79% response rate. The survey included items addressing demographics, behavioural factors, financial risk tolerance, and risk-return awareness. The results were analysed using SPSS software, employing descriptive statistics to examine the distribution of responses (e.g., mean, median) and SEM to investigate relationships between study variables. Additionally, CHAID decision tree analysis was utilised to further explore group-splitting variables through chi-squared tests. SEM results indicated a significant positive relationship between 2 of the independent variables (anchoring and risk tolerance) and risk return awareness. Meanwhile, CHAID decision tree analysis revealed that investors with the highest risk return awareness were those prone to both anchoring and availability behavioural biases. The study is limited by the use of self‑reported data and the reduced reliability of certain behavioural‑bias scales .This research has therefore shed some light on the complexities of investor decision-making in South Africa, a topic not previously explored in this context. The researcher hopes this study highlights the intricate interplay between behavioural factors, risk tolerance, and risk return awareness, moving beyond the traditional approach of examining one bias at a time without considering the interaction of various factors in investor decision-making. From a practical and policy recommendations perspective, the findings suggest that investor‑education programmes should focus on improving awareness of cognitive biases, particularly anchoring and availability, to enhance decision‑making quality and long‑term financial outcomes.