Analyzing the Effects of Investor Demographics on Financial Decisions Through the Lens of Human Biases

Abstract

This paper investigates the relationship between human psychological biases and financial decisions. Its contributions to the literature are threefold: First, it analyzes how human biases vary in degree across people of different demographics; Second, it looks at the impact of individuals’ demographics on financial behavior through the lens of these biases; Third, it quantifies the dollar amount of how much people are able to save by becoming more aware of their own biases. To address these topics, this study employs logit regression models. The main findings are that demographics such as gender, race, education level, and income level all have strong and significant relationships with psychological biases, and these biases likewise have strong and significant effects on individuals’ financial decisions such as savings and taking on debt.