The Influence of Temporal Focus and Authority Bias on Investment Decisions: An Empirical Analysis

Abstract

Purpose: This paper considers two of such factors which are temporal focus and authority bias in relation to the way people make investment decisions in relation to the area of Behavioral biases in finance.

Methodology: An exploratory quantitative approach was adopted by administering a cross-sectional survey comprising of one hundred and ninety-seven individual investors. Concerning the temporal orientation, the Zimbardo Time Perspective Inventory (ZTPI) was used while the authority bias was measured by a revised scale. Data were analyzed through mean and standard deviation, correlation coefficient, and regression equation.

Findings: The results provided positive correlations between future oriented temporal focus and calculated risk taking, r = 0.45, p < 0.01 and between authority bias and reliance on expert opinion, r = 0.50, p < 0.01. Micro PML model: Temporal focus also showed significant coefficient value of 0. 35 and authority bias of 0. 40 therefore the two variables accounted for 30% of the total variance of investment decisions.

Practical Implications: Such biases should be highlighted in order to enhance the decision making process among the investors. It is, however, the financial advisors and policy makers’ responsibility to counter the detrimental impacts of biases.

Research Limitations: Due to the cross-sectional analysis, one can examine only short-term changes; therefore, it is necessary to conduct longitudinal research.

Originality: This work combines temporal focus and authority bias to demonstrate how both of these factors influence investment decisions.