Risk Perception as a Mediator Between Heuristic Biases and Investment Decision Making: Case Study of Pakistan Stock Exchange


  • Muhammad Hasan
  • Syed Salman Ahmed Assistant Professor, IQRA University, Karachi
  • Sadaf Mustafa Assistant Professor, Department of Commerce, University of Karachi.
  • Atif Aziz Professor, IQRA University, Karachi




Behavioral factors, psychological biases, Heuristic Theory, Risk Perception, Investment Decision Making, SEM


Purpose - The purpose of the study is to investigate the impact of heuristic biases on financial decision-making, particularly focusing on availability bias, anchoring and adjustment, overconfidence, and representativeness. Additionally, the study aims to recommend investment-related policies based on its findings.

Study Design/Methodology/Approach - The study adopts a quantitative approach with correlational research as its methodology. It utilizes a sample size of 343 respondents and employs a structured questionnaire built upon prior studies. Independent variables such as overconfidence bias, representativeness bias, availability bias, and anchoring bias are examined, while the impact of these biases on investment decision-making, considered the dependent variable, is assessed.

Findings- The findings reveal that representativeness and anchoring biases significantly affect risk perception, consequently impacting investment decision-making indirectly. However, the availability bias and overconfidence bias did not demonstrate significant indirect impacts on investment decision-making through risk perception.

Practical Implications- The study suggests implications for enhancing the application of behavioral finance. It recommends future studies to target institutional investors, exploring factors like herd behavior to better understand decision-making processes in finance. These insights can inform the development of more effective investment policies and strategies