Impact Of Overconfidence And Loss Aversion Biases On Crypto Currency Investment Decisions: Evidence From The University Of Haripur

Abstract

The high growth of digital currencies has attracted the attention of numerous investors
and youngsters. Nevertheless, cognitive and psychological disposition affect investors
and the youth decision-making in investment in digital currencies like crypto currencies.
The biases that interfere with investment decision-making are overconfidence bias, loss
aversion bias and numerous other factors, such as risk perception, social influence and
financial literacy. The main objective of this paper is to determine the effects of
overconfidence bias on crypto currency investment decisions and to determine the effects
of loss aversion bias on crypto currency investment decision making. This research is
quantitative and simple random sampling is used to achieve the objectives of the study
since the questionnaire is filled by 384 students at the University of Haripur in Khyber
Pakhtunkhwa, Pakistan. The results validated the reliability of the variables; and
proposed the OLS method to investigate the effect of overconfidence bias, loss aversion
bias, risk perception, financial literacy and social influence on crypto currency
investment decision. This paper found that the overconfidence bias positively influences
the decision to invest in crypto currency with a statistically significant impact. In
addition, the loss aversion bias is a negative and significant influence on the crypto
currency investment decision which means that individuals with low risk logicality of
loss and with dislike of risk incur significantly less money in a fluctuating currency like
crypto currency. Also, there is the presence of financial literacy, risk perception, and
social influence that have statistically significant effect on the investment in crypto
currency. This paper recommends that policymakers should offer avenues where
investors may get informed on the behavioral finance to understand how to identify the
biases of overconfidence and loss aversion when investing in the crypto currency.
Investors have no other option than to select the most suitable investment strategies
which may involve periodically reviewing their portfolio and concentrating on long-term
returns so that they do not fear losing their money because of short-term fluctuations in
prices.