Prevailing Behavioral Biases and Investor Profiles: A Survey of Professional Investors

Abstract

This article analyzes the relevance of behavioral finance in the functioning of financial markets. Using the empirical evidence from four surveys of professional investors with an average of 92 respondents, the authors aim to enhance the structure and systematization in the field. They first study the awareness of and level of education in behavioral finance, determining a clear gap of learning experience for professional investors. They also analyze the main cognitive and emotional biases, identifying representativeness, loss aversion, and herding as the most relevant ones in the decision-making process. Moreover, the authors evaluate the prevalence of under- and overreaction through several financial scenarios and the lack of ability to anticipate the market. Finally, they classify professional investors through their investment profile, applying the BB&K five-way model. They identify overconfidence as being a predominant bias affecting investors and find a clear disconnect between investors and their clients.