The Impact of Investor's Cognitive Psychology on Decision Making and Financial Policy

Subject Areas : Financial engineering

mostafa heidari haratemeh ¹ , Vahid Araei ² , seyed mahmod eslami ³

1 - Department of Economics, Naragh Branch, Islamic Azad University, Naragh, Iran
2 - Department of Public Administration and Public Policy, Central Tehran Branch, Islamic Azad University, Tehran, Iran
3 - Department of Public Administration and Public Policy, Central Tehran Branch, Islamic Azad University, Tehran, Iran

Received: 2023-03-01 Accepted : 2023-05-11 Published : 2023-03-21

Keywords: " financial decisions ", " Time preference", " Risk attitude", Keywords: " Investor's Cognitive Psychology ",

Abstract :

The cognitive psychological conditions of the investor can influence the financial decision regarding the selection of priorities, risk assessment. In this regard, this article examines how the investor's mood affects the financial decision by making minor changes in the "Lucas" model. The results showed: a) The investor with a better Mood state, has less risk aversion and vice versa. b) Increasing time preference significantly increases the price of capital and reduces the accuracy of forecasts for return on investment. c) Mood State variables have a greater impact on investment markets than on the securities market. Finally, by considering the role of investor Mood State in asset pricing models, objective evidence of growing anomalies in the capital market can be justified. Human behavior is influenced by both the senses and the intellect, so neither should be left out in economic decisions. Therefore, paying attention to the Mood state variable in the investor can help explain the sharp fluctuations in the capital market.