How to Trade in 5 Minutes:Testing Cognitive Biases in Portfolio Management

Abstract

Teaching people valuable strategies for investment can be difficult. Past research has shown a lack of knowledge and cognitive biases to be harmful factors in investor decision-making. The present research sought to increase investor awareness in an attempt to counteract these sub-optimal decisions. In an investment simulation based on financial data from 2000-2010, we looked to see if investors would attain higher returns if provided with simple investment advice and information about these cognitive biases. Our results revealed significantly different tendencies in successful versus unsuccessful investors. Our results also suggested that including additional information may lead to higher returns on investment, but without statistical significance. We discuss our findings in the context of previous research on this topic.