What makes investors tick?

Editor's Choice, Finance | Wed 22 Feb | Author – Business & Finance Dr Marius Claudy
Dr Marius Claudy, economist and assistant professor in marketing at the UCD Graduate Business School

A recent survey has illustrated numerous theories about investor behaviour, writes Dr Marius Claudy.

The trends and events for 2017 are still in the making, and when it comes to investment there is an uncertainty that will inevitably creep its way into market trends.  Whether a full-time investment professional or a part-time investor, the general consensus of people in the industry is that the notion of ‘predicted markets’ can be precarious at best.

We are at the mercy of current affairs, government decisions, social changes and bond bubbles, and the roll of the dice ensures that nothing is a foregone conclusion when it comes to investment. However, there exists distinct characters within the industry: there will always be the risk-takers and ‘steady’ investors, the bears and the bulls, the well-seasoned experts and those taking their first shot.

Who are the ‘safe’ investors, or is there such a thing? What makes them tick? Are we really at the mercy of current events? Or does human nature assure that we look to previous experience rather than the current climate when taking the plunge? Understanding the behaviour – and inherent biases – behind our investment decisions is as important to being a player in this arena as understanding strategies and jargon.


As a professor focused on consumer behaviour, I have an enthusiasm for the psychological mechanism and consistent biases that underlie people’s conduct, and so analysing a recent survey by investment consulting partner iCubed I linked my academic observations with the tendencies of Irish investors. The 2016 iCubed Investor Intelligence Survey confirmed many previous theories about investor behaviour, though some were specific to the Irish arena.

One example is the enduring attachment to property investment. Despite the recent collapse of the Irish property market, the Irish – more than most affluent nations – continue to link owning their own home to having a sense of security. Irish investors see property as a ‘safe’ and ‘steady’ investment, notwithstanding the recent crash.


Less specific to the Emerald Isle are the various social and cultural factors and learned behaviours that come into play, in conjunction with age variations and gender differences, which may explain some of the biases when it comes to financial decision making.

Synonymous with previous studies, this iCubed survey showed that women are more risk-averse when it comes to investments. To be more specific, women tend to prefer avoiding losses over making the equivalent gain.

According to Louann Lofton, author of Warren Buffet Invests Like A Girl, women see the long-term rewards and repercussions over immediate satisfaction, and have an overall more prudent approach to investing. Indeed, previous research has shown that female investors tend to trade less frequently, and therefore report higher net returns on investments than men (Barber and Odeon 2001).

Women are more risk-averse when it comes to investments

Conversely, Barber and Odeon argue that men are more overconfident than woman, a finding that the iCubed survey also seems to confirm. Overconfidence, it seems, has physiological factors driving it that are more prevalent in men than in women.

John Coates, a neuroscientist from Cambridge University, shows that when it comes to trading, men are more hormonal than women. Testosterone is released in the face of competition and risk-taking. The ‘Winner Effect’ comes into effect more with men, whereby after a win, the body releases more testosterone, which leads to more confidence, increasing our chances of winning the next time. However, eventually confidence becomes cockiness, resulting in investors taking higher-risk decisions without adequate research or verification.

Overconfidence is also associated with ‘confirmation bias’. This tendency results in investors looking for, and placing greater emphasis on, information that supports their existing beliefs about an investment rather than looking for objective evidence or seeking advice.

Indeed, the iCubed findings suggest that Irish men are more assured in their ability, and on the prospect of making an investment they were less likely to take professional advice – despite the likelihood of this resulting in costly mistakes.

So what does this tell us? Well, to put it into the words of Louann Lofton, Warren Buffet invests like a girl – and so should you.


Intergenerational differences in investment behaviour were also to be observed from the iCubed survey. It was shown that younger people are more affected by recent events. The financial crisis along with the market flux following Brexit and the US election were both seen to impact more on the investment confidence of younger generations.

This is not surprising. Younger people have limited experience and they are more likely to base their investment decisions on current events and specific performances of markets. Interestingly, this ‘availability bias’ can have long-term effects, and research shows that specific events like a great recession can adversely influence investor behaviour in decades to come (Malmendier and Nagel 2011).

Our investment decisions, like all human behaviours, are susceptible to certain biases

Older people have several decades of experience, and will draw on this experience for a more balanced view of potential outcomes. As with most situations in life, experience is a key driver of future behaviour, for both better and worse.

Unsurprisingly, various studies show that individuals who have experienced high stock market returns are less risk adverse, more likely to participate in the stock market, and more inclined to invest more of their wealth in stock.

In summary, our investment decisions, like all human behaviours, are susceptible to certain biases. Particularly, men seem to be more prone to suffer from over-confidence and confirmation bias when it comes to investments, while younger investors often take a more short-term view based on most recent information and events. The good news is that being aware of these cognitive biases can help us to make better investment decisions by, for example, thoroughly researching potential investments and by taking a more prudent and longer-term perspective.

About the author: Dr Marius Claudy is an economist and assistant professor in marketing at the UCD Graduate Business School. The iCubed Investor Behaviour Survey, published in November 2016, focused on a countrywide panel of people with a household income threshold of over €75,000. iCubed is an investment firm collaborating with financial advisers and their clients to provide a consistent approach to investing; a joined-up approach, promoting better investment outcomes.

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