The Application of Endowment Bias in the Field of Investment

Abstract

In recent years, people who research finance are paying crucial attention in behavioral finance. Behavioral Finance explains that indicidual always believe in traditions, rather than take actions and decisions rationally. Researchers have described and discussed many psychological biases in detail in their literatures of behavioral finance, and the endowment effect is one of them. By means of case analysis, this paper conducts an in-depth study on the application of endowment bias in the field of investment through the psychological behavior research of mutual fund investors and a study of biases affecting investor behavior in India, and draws three conclusions: First of all, behavioral bias plays an important role in investment decisions. What’s more, the investor becomes emotionally attached to the entity he owns, which becomes more valuable to him when it comes to selling. Finally, an investo’s decision is a combination of a person’s psychological decision and financial decision. By understanding these conclusions, investors can invest more rationally and create greater benefits for themselves.