Psychological cognition and preference selection in the decision-making process of financial investment

Abstract

Since its introduction to economics, cognitive psychology has often been adopted to analyze risk-based judgement and decision-making. This paper attempts to identify the relationship between cognitive bias and decision-making behavior in financial investment. Therefore, several variables were selected to investigate the changes of risk preferences among investors in various scenarios, and a structural equation model was established to study how the bias of investment behavior is affected by the cognitive bias of investors in decision-making. The results show that the bias of investment behavior is influenced by psychological cognition, preference selection and personal background of the decision-maker; among them, personal background has the weakest impact on behavior bias, and maintains a moderate correlation with decision-making psychology; in stock investment, the behavior bias mainly comes from price anchoring, misjudgment, and attributional bias. This research helps to control the investment risk, and promote the regulation of Chinas financial market.