Journal of Emerging Trends in Economics and Management Sciences: Home

Abstract:
This study examines the psychological bias disturbing the behavior of investors in Bahrain in investment choices before and after the 2007-2008 economic crises. Presumptions of behavioral finance are used to help in understanding precise behaviors of investors that led to vast losses, in hope that they may be prevented in the future. The major psychological biases examined are overconfidence, representativeness, loss aversion, regret, and group behavior. Five interviews where done with managers in Bahrain, questionnaires have also been distributed to a group of investors. The study revealed that the psychological preconceptions affected investors before and throughout the crisis, heading to great losses that may have taken part in intensifying the crisis. Results showed, as there was an optimistic relationship between regret and group behavior, this association did not exist after the crisis as investors became more cautious about making investment decisions. Implications of findings also discussed.

Keywords: economic crisis, heuristics, loss aversion, risk, investor behaviour

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