The current study aimed to investigate the relationship between the behavioral biases of the investors and the performance of their investment decisions. Behavioral biases mean how an individual acts in a particular situation. Most of the investors take their decisions on the basis of their intuitions rather than relying on the information available from different sources. Furthermore, some investors don’t even try to get information regarding the movements of stock prices. Investment decisions involve psychological illusions which have two dimensions, one is Heuristic rules (such as Overconfidence, representative bias, Gamblers’ Fallacy, Anchoring, Availability bias) and the other is Prospect rules (such as Regret Aversion, Loss Aversion and mental accountability). These two rules have been taken as independent variables while investment performance has been taken as a dependent variable in this study. Data is collected form 100 investors of Pakistan’s Stock exchange through a self-designed questionnaire. Structural Equation modeling is used for the analysis. An insignificant relationship between the Prospect variables and the investors’ decisions was found while there was a significant relationship between the Heuristic variables and the investors’ decisions. The results of the study may be helpful for investors in order to take rational, reliable and profitable decisions.
