Home  Journals  Digest Finance  4(268) - 2023 October-December

Methods of diagnosing irrational behavior of retail investors in the financial market

Vol. 28, Iss. 4, DECEMBER 2023

Article PDF Version

Received: 16 October 2023

Received in revised form: 25 October 2023

Accepted: 9 November 2023

Available online: 28 December 2023

Subject Heading: SECURITIES AND FINANCIAL MARKETS

JEL Classification: G10, G12, G17, G18, G19

Pages: 420–438

https://doi.org/10.24891/df.28.4.420

Subject. This article examines the problem of the influence of cognitive distortions on the process of investment decision-making, as well as the development of tools for quantitative and qualitative diagnostics of the irrationality of retail investors.
Objectives. The article aims to test technologies for identifying and quantifying patterns of irrational assessment of financial alternatives, as well as develop recommendations for minimizing their impact on financial markets.
Methods. For the study, we used the methods of formal and logical, and mathematical and statistical analyses.
Results. The article presents a set of author-developed tests that can help identify the ability of cognitive distortions to influence the process of investment decision-making.
Conclusions. The application of the proposed methodology can help solve the problem of monitoring market expectations for panic moods that can have a significant impact on the changes in the financial market as a whole.

Keywords: prospect theory, mental accounting, subadditive discounting, irrational behavior, insignificant factors

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