Personality traits and behaviour biases: the moderating role of risk-tolerance

The current research tries to contribute to the prospect theory by examining how personality factors affect behaviour biases. Moreover, the study tries to inspect how risk-tolerance behaviour moderates the relationship between personality traits and behavior biases. The research considered a cross-sectional research design to collect responses from 847 individual investors through a questionnaire. The study considered a convenience sampling technique. Further to examine the hypotheses, the study used SEM and PROCESS macro v3.0 for SPSS. The findings of the study suggest that conscientiousness and extroversion traits significantly influence behaviour biases. The findings also explain that neuroticism was associated with herding, disposition, and anchoring bias. The findings confirmed the moderating effect of risk-tolerance on the association between personality traits and behaviour biases. The findings contribute to the existing literature of behaviour finance by focusing on the prospect theory as well as some practical implications for investors and financial advisors. The study suggests to the individual investors with different traits how they can overcome these biases while investing. The study suggests that financial advisors should educate their clients and also establish a lock-gain point and stop-loss point to reduce the effect of such biases. The study also suggests that investment advisors should provide information more efficiently so that investors’ portfolios could be amassed into a well-diversified investment and tries to set up efficient approaches associated with investment quality and give swapping options as per their risk-tolerance behavior. The research contributes to behaviour finance literature by signifying the moderation effect of risk tolerance on the association amid personality factors and behavioural biases and how it reduces the influence of biases while taking investment decisions among Indian investors. To the best of our knowledge, this is the first comprehensive study that examines the moderation effect of risk-tolerance among the relationship between personality traits and behaviour biases. Furthermore, it demonstrates that an individual’s risk-tolerance enhances their involvement in the decision-making process, allowing them to make the best financial option possible.