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Behavioral Biases and Retail Investment Decision-Making in Nigeria

Abia Joy Victor

Abstract

Classical financial theory assumes that investors are rational actors who process information objectively and make decisions that maximise expected utility, yet real-world investment behaviour, particularly among retail investors in emerging markets, consistently departs from this assumption. This study examined the influence of behavioural biases, specifically overconfidence, herd behaviour, and loss aversion, on retail investment decision-making in Nigeria, both individually and collectively. The study adopted a quantitative cross-sectional survey design grounded in Prospect Theory and Behavioural Finance Theory. Primary data were collected through a structured questionnaire administered to retail investors across Nigeria's six geopolitical zones using a multi-stage sampling technique combining stratified and convenience sampling. Of 442 questionnaires administered, 385 valid responses were retrieved and analysed using descriptive statistics, diagnostic tests, Pearson correlation, and multiple linear regression in SPSS version 29.0. Findings showed that overconfidence bias (β = 0.186, p = 0.000), herd behaviour (β = 0.164, p = 0.000), and loss aversion (β = 0.239, p = 0.000) each had a positive and statistically significant effect on retail investment decisions, with loss aversion emerging as the strongest predictor. The three biases jointly explained 31.7% of the variance in retail investment decisions (R2 = 0.317, F = 58.924, p = 0.000). The study concluded that Nigerian retail investment decisions are shaped substantially by psychological and emotional factors rather than by rational analysis alone, and recommended that investors, financial advisors, regulators, and financial education providers integrate behavioural finance insights into practice, with particular attention to loss aversion.

Keywords

Behavioural BiasesHerd BehaviourInvestment Decision-MakingLoss AversionOverconfidenceRetail Investors

References

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