Program and Development Research

Program and Development Research

The Impact of Representativeness Bias on Investor Decision-Making: The Mediating Role of Overconfidence

Document Type : Original Article

Authors
1 Master of Accounting, Department of Administrative Sciences, Imam Reza International University, Mashhad, Iran
2 Associate Professor, Department of Accounting, Faculty of Administrative Sciences, Imam Reza International University, Mashhad, Iran
Abstract
Nowadays in Iran, given the economic characteristics of developing countries, creating conditions in which investors from various social groups can select the preferred investment company is of particular importance. In this regard, the present study employed a questionnaire based on a five-point Likert scale consisting of 20 items. To assess the reliability of the instrument, Cronbach’s alpha coefficient was used, and the results confirmed its adequacy. The statistical population consisted of all shareholders of the Investment Company of the Bank Employees’ Pension Fund (with more than 10 years of activity). A non-probability convenience sampling method was adopted, and a sample of 144 shareholders was selected. The collected data were analyzed using structural equation modeling (SEM) with the aid of Smart PLS software.
The findings indicate that investors’ representativeness bias has a significant effect on investors’ distrust. Furthermore, investors’ distrust directly influences investment decisions and mediates the relationship between representativeness bias and investment decisions.
Keywords

Subjects


Bashirimanesh, N., Maddah, E., & Agahi, F. (2022). The effect of managers’ behavioral biases on auditors’ strategies in dealing with audit risk. Judgment and Decision-Making in Accounting, 1(3), 25–52. https://doi.org/10.30495/jdaa.2022.693172
Khaksar Khamiran, F., Aghajani, V., & Sheikhi, M. (2020). The effect of cognitive biases on investment decisions of stock-market investors in Ardabil Province. Proceedings of the 2nd Conference on Industrial Engineering, Economics and Management, Italy.
Khalili, Y., Kabiri, M. T., Heydari-Rostami, K., & Momeni-Yansari, A. (2024). Exploring the role of sustainability reporting in managers’ investment decisions. Judgment and Decision-Making in Accounting, 1(3), 135–162. https://doi.org/10.71960/jdaa.2025.1126138
Zangoei, A. (2024). The effect of behavioral biases on individual investors’ decisions in Iran’s stock market with the moderating role of risk-taking (Master’s thesis). Institute for Management and Planning Studies, Tehran.
Ziyari, M. (2023). Investigating the effect of behavioral bias on investors’ decisions in the Semnan Province stock exchange. Proceedings of the 16th National Conference on Economics, Management and Accounting, Shirvan.
Zeinivand, M., Jenani, M. H., Hemmatfar, M., & Setayesh, M. R. (2023). Behavioral biases and the decisions of individual and institutional investors under market uncertainty in the Tehran Stock Exchange. Investment Knowledge Quarterly, 12(1), 203–232.
Sirani, M., Razmjooei, M., & Samari, R. (2023). The effect of heuristic biases on investment decisions and perceived market efficiency in the Tehran Stock Exchange. Financial and Behavioral Accounting Research, 3(1), 1–16. https://doi.org/10.30486/fbra.2023.1987550.1199
Abbasi, A. (2012). The effect of CEO overconfidence and corporate social responsibility on equity capital cost (Master’s thesis). Khatam University, Tehran.
Ghahremani, M. (2024). Investigating the effect of representativeness bias on investors’ decisions considering the role of investor overconfidence (Case study: Shareholders of the Pension Fund Investment Company of Banks) (Master’s thesis). Imam Reza International University, Mashhad.
Karamati, M. (2020). Investigating the impact of managers’ behavioral biases on investment decisions (Case study: Branch managers of private banks in Mashhad) (Master’s thesis). Sanabad Golbahar Institute of Higher Education, Golbahar.
Mousavi, M. (2024). Investigating the effect of behavioral biases on investment decisions with the moderating role of financial literacy (Master’s thesis). Zand Institute of Higher Education, Shiraz.
Namdari, Sh. (2022). The effect of overconfidence bias and self-attribution bias on investors’ decisions considering the moderating role of information acquisition (Master’s thesis). Mad Institute of Higher Education, Shiraz.
Nikrosh, B. (2024). Investigating the effect of behavioral biases on investment decisions based on gender in the Tehran Stock Exchange (Master’s thesis). Lamei Gorgani Institute of Higher Education, Gorgan.
Adel, B., Mariem, T. (2013). The impact of overconfidence on investors' decisions. Business and Economic Research, 3(2),53. Doi: 10.5296/ber. Kengatharan, L., Kengatharan, N. (2014). The influence of behavioral factors in making investment decisions and performance: Study on investors of Colombo Stock Exchange, Sri Lanka. Asian Journal of Finance & Accounting, 6(1), 1-23. Doi:10.5296/ajfa.v 6i1.4893.
Ali, W. (2019). The Impact Of Self-attribution Bias and Overconfidence Bias on Perceived Market Efficiency.  Doi: 10.2139/ssrn.3417271
Bouteska, A., Harasheh, M., Abedin, M. Z. (2023). Revisiting overconfidence in investment decision-making: Further evidence from the US market. Research in International Business and Finance, 66, 102028. Doi: 10.1016/j.ribaf.2023.102028
Dechow, P., Ge, W., Schrand, C. (2010). Understanding earnings quality: A review of the proxies, their determinants and their consequences. Journal of Accounting and Economics, 50(2-3), 344-401. Doi: 10.1016/j.jacceco.2010.09.001
Haixia, Y. (2018). Investor sentiment, managerial overconfidence, and corporate investment behavior. International Journal of Social Science and Economic Research, 3(3), 858-868. Retrieved from https://ijsser.org/more2018.php?id=59
Hermalin, B. E., Weisbach, M. S. (2003). Boards of Directors as an Endogenously Determined Institution: A Survey of the Economic Literature. Economic Policy Review, 9(1),7-26. Retrieved from https://ssrn.com/abstract=794804
Hirshleifer, D. (2015). Behavioral finance. Annual Review of Financial Economics,7, 133-159. Doi: 10.1146/annurev-financial-092214-043752
Koen, I., Mariachiara, T. (2024). Overconfidence, financial literacy and excessive trading. Journal of Economic Behavior & Organization,219, 152-195. Doi:10.1016/j.jebo.2024.01.010
Michelle, M. P. (2006.) Behavioral financial knowledge and asset management. Translation: Ahmad Badri, Kayhan Publications, first edition.
Olszak, C.,Tkacz, M., Weichbroth, P., Zurada, J.(2025). Exploration of Behavioral Patterns and Cognitive Biases among Stock Market Investors. Proceedings of the 58th Hawaii International Conference on System Sciences. Hawaii, United States of America.
Pambudi, T. R. S., Sabandi, M. (2024). Financial Literacy, Risk Perception, Overconfidence Moderated by Financial Education on Investment Decisions. Economic Education Analysis Journal, 13(2), 151-162. Doi:10.15294/8x7g2419
Pathak, D. D., Thapa, B.S. (2024). Beyond market anomalies: How heuristics and perceived efficiency shape investor behavior in developing markets. Investment Management and Financial Innovations. 21(3), 1-14. Doi:10.21511/imfi.21(3).2024.01
Patiu, L.S., Ang, L.K., Masanque, J.A., Nacario.J.M., Paguntalan,R.M. (2025). Unraveling the Investment Puzzle: Do Behavioral Biases and Financial Literacy Matter?. Review of Integrative Business and Economics Research, 14(3),596-611.
Prosad, J. M., Kapoor, S., Sengupta, J., Roychoudhary, S. (2017). Overconfidence and disposition effect in Indian equity market: An empirical evidence. Global Business Review, 19(5), 1303-1321. Doi: 10.1177/0972150917726660