Over Confidence, Mental Accounting, and Loss Aversion In Investment Decision

Rohmad Fuad Armansyah


The psychology related to investment cannot be ignored by individuals who want to get investment returns. Investment decisions are the most important decisions in decision making. This investment decision is a policy carried out by investors to invest in one or more assets to get more profits in the future. Overconfidence investors prefer higher risk returns to be more important than those overestimated in terms of their knowledge and lower than expected. Mental accounting considers the costs and benefits of loss avoidance decisions made by investors to protect themselves against losses. This study discusses financial problems related to community investment decisions, special investments in real assets and financial assets. The data used are 250 respondents' data on Indonesian investors who invest in Indonesian capital markets. The results showed that overconfidence and mental accounting significantly affected investors' investment decisions in the Indonesian capital market.


Overconfidence; mental accounting; loss aversion; investment decision; financial behavior

Full Text:



Ackert, L., & Deaves, R. (2010). Behavioral Finance: Psychology, Decision-Making, and Markets. Cengage Learning: South-Western, USA.

Aziz, B., & Khan, M. A. (2016). Behavioral Factors Influencing Individual Investor’s Investment Decision and Performance, Evidence from Pakistan Stock Exchange. International Journal of Research in Finance and Marketing (IJRFM), 6(7).

Baker, H. K., & Nofsinger, J. R. (2011). Behavioral Finance: Investors, Corporations, and Markets. In Behavioral Finance: Investors, Corporations, and Markets. https://doi.org/10.1002/9781118258415

Chen, G., Kim, K. A., Nofsinger, J. R., & Rui, O. M. (2007). Trading performance, disposition effect, overconfidence, representativeness bias, and experience of emerging market investors. Journal of Behavioral Decision Making. https://doi.org/10.1002/bdm.561

Cherono, I., Olweny, T., & Nasieku, T. (2019). Investor Behavior Biases and Stock Market Reaction in Kenya. Journal of Applied Finance & Banking, 9(1).

Chinn, W. W. (1998). The Partial Least Squares Approach to Structural Equation Modelling. Modern Methods for Business Research.

Combrink, S., & Lew, C. (2020). Potential Underdog Bias, Overconfidence and Risk Propensity in Investor Decision-Making Behavior. Journal of Behavioral Finance, 21(4). https://doi.org/10.1080/15427560.2019.1692843

Engelhardt, G. V. (2003). Nominal loss aversion, housing equity constraints, and household mobility: Evidence from the United States. In Journal of Urban Economics (Vol. 53, Issue 1). https://doi.org/10.1016/S0094-1190(02)00511-9

Ghozali, I. (2014). Structural Equation Modeling, Metode Alternatif dengan Partial Least Square (PLS). Badan Penerbit Universitas Diponegoro.

Haigh, M. S., & List, J. A. (2005). Do professional traders exhibit myopic loss aversion? an experimental analysis. In Journal of Finance (Vol. 60, Issue 1). https://doi.org/10.1111/j.1540-6261.2005.00737.x

Hair Jr., J. F., Matthews, L. M., Matthews, R. L., & Sarstedt, M. (2017). PLS-SEM or CB-SEM: updated guidelines on which method to use. International Journal of Multivariate Data Analysis, 1(2), 107. https://doi.org/10.1504/ijmda.2017.10008574

Hermuningsih, S. (2012). Pengantar Pasar Modal Indonesia. UPP STIM YKPN. Yogyakarta.

Hunguru, P., Sibanda, V., & Tadu, R. (2020). Determinants of Investment Decisions: A Study of Individual Investors on the Zimbabwe Stock Exchange. Applied Economics and Finance, 7(5). https://doi.org/10.11114/aef.v7i5.4927

Hwang, H., & Takane, Y. (2004). Generalized structured component analysis. Psychometrika. https://doi.org/10.1007/BF02295841

Isidore R, R., & Christie, P. (2019). The relationship between the income and behavioural biases. Journal of Economics, Finance and Administrative Science, 24(47). https://doi.org/10.1108/JEFAS-10-2018-0111

Jain, J., Walia, N., & Gupta, S. (2019). Evaluation of behavioral biases affecting investment decision making of individual equity investors by fuzzy analytic hierarchy process. Review of Behavioral Finance, 12(3). https://doi.org/10.1108/RBF-03-2019-0044

Kahneman, D., Knetsch, J. L., & Thaler, R. H. (1990). Experimental Tests of the Endowment Effect and the Coase Theorem Author Experimental Tests of the Endowment Effect and the Coase Theorem. In Source: The Journal of Political Economy (Vol. 98, Issue 6).

Kahneman, D., & Tversky, A. (1979). Prospect Theory - An Analysis Of Decision Under Risk.pdf. In Econometrica.

Knetsch, J. L. (2019). The endowment effect and evidence of nonreversible indifference curves. In Choices, Values, and Frames. https://doi.org/10.1017/CBO9780511803475.010

Köbberling, V., & Wakker, P. P. (2005). An index of loss aversion. Journal of Economic Theory, 122(1). https://doi.org/10.1016/j.jet.2004.03.009

Kusumawati, M. (2013). Faktor Demografi, Economic Factors dan Behavioral Motivation Dalam Pertimbangan Keputusan Investasi Di Surabaya. Finesta, 1(2).

Lusardi, A., & Mitchell, O. S. (2011). Financial literacy around the world: An overview. Journal of Pension Economics and Finance. https://doi.org/10.1017/S1474747211000448

Lutfi, L. (2011). The Relationship Between Demographic Factors And Investment Decision In Surabaya. Journal of Economics, Business, and Accountancy | Ventura. https://doi.org/10.14414/jebav.v13i3.13

Monecke, A., & Leisch, F. (2012). SemPLS: Structural equation modeling using partial least squares. Journal of Statistical Software. https://doi.org/10.18637/jss.v048.i03

Nofsinger, J. R., & Nofsinger, J. R. (2018). Mental Accounting. In The Psychology of Investing. https://doi.org/10.4324/9781315230856-6

Pikulina, E., Renneboog, L., & Tobler, P. N. (2017). Overconfidence and investment: An experimental approach. Journal of Corporate Finance, 43. https://doi.org/10.1016/j.jcorpfin.2017.01.002

Puspitaningtyas, Z. (2013). Perilaku Investor Dalam Pengambilan Keputusan Investasi Di Pasar MODAL. Jurnal Akuntansi Universitas Jember.

S Hallale, P., & Gadekar, M. (2019). A Study of Behavioural Factors Affecting Individual Investment Decisions. International Journal of Trend in Scientific Research and Development, 3(6), 298–311. https://www.ijtsrd.com/papers/ijtsrd28100.pdf%0Ahttps://www.ijtsrd.com/management/business-economics/28100/a-study-of-behavioural-factors-affecting-individual-investment-decisions/pawankumar-s-hallale

Samuelson, W., & Zeckhauser, R. (1988). Status quo bias in decision making. Journal of Risk and Uncertainty. https://doi.org/10.1007/BF00055564

Schmidt, U., & Zank, H. (2005). What is loss aversion? Journal of Risk and Uncertainty, 30(2). https://doi.org/10.1007/s11166-005-6564-6

Seiler, M. J., & Seiler, V. L. (2010). Mitigating Investor Risk-Seeking Behavior in a Down Real Estate Market. Journal of Behavioral Finance, 11(3). https://doi.org/10.1080/15427560.2010.507166

Tandelilin, E. (2010). Portofolio dan Investasi Teori dan Aplikasi. In E-jurnal Manajemen.

Tandiontong, M., & Rusdin. (2015). Komparasi Capital Asset Pricing Model Versus Arbitrage Pricing Theory Model atas Volatilitas Return Saham. Jurnal Keuangan Dan Perbankan.

Thaler, R. (1980). Toward a positive theory of consumer choice. Journal of Economic Behavior and Organization, 1(1). https://doi.org/10.1016/0167-2681(80)90051-7

Thaler, R. H. (2011). Mental accounting matters. In Advances in Behavioral Economics. https://doi.org/10.2307/j.ctvcm4j8j.8

Thaler, R. H., & Shefrin, H. M. (1981). An Economic Theory of Self-Control. Journal of Political Economy, 89(2). https://doi.org/10.1086/260971

Tversky, A., & Kahneman, D. (1991). Loss Aversion in Riskless Choice: A Reference-Dependent Model. The Quarterly Journal of Economics. https://doi.org/10.2307/2937956

Verhofen, M. (2014). Finance. https://doi.org/http://dx.doi.org/10.2139/ssrn.2415741

Wulandari, D. A., & Iramani, R. (2014). Studi Experienced Regret, Risk Tolerance, Overconfidance Dan Risk Perception Pada Pengambilan Keputusan Investasi. Journal of Business and Banking. https://doi.org/10.14414/jbb.v4i1.293

DOI: https://doi.org/10.21107/jaffa.v9i1.10523


  • There are currently no refbacks.

Our Journal indexed by:

Our support tools using:


Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.