THE EFFECT OF FINANCIAL LITERACY ON COGNITIVE BIAS AND EMOTIONAL BIAS IN INDIVIDUAL INVESTORS

Abstract

Each individual will act fairly in making their financial decisions. However, the psychological characteristics of each individual will also influence decision making. Often individuals experience phenomena where they are prone to errors or bias in perceiving investment-related information. Financial literacy, cognitive bias, and emotional bias are significant aspects of investor behavior and investment decisions for individual investors. The purpose of this study was to determine whether financial literacy has an impact on cognitive biases and emotional biases related to investment. From a questionnaire distributed to 100 investors in the city of Bandung with data processing using SPSS Statistics 21, it was found that financial literacy has a significant positive effect on cognitive bias and financial literacy also has a significant positive effect on emotional bias. The results of this study also state that investors who have high financial literacy, the behavior of cognitive biases and emotional biases in these investors will decrease.