Understanding Cryptocurrency Investment Decisions Through Heuristic Biases and Investor Experience

Abstract

Cryptocurrency markets are characterized by high volatility, limited valuation benchmarks, and rapid information flows, creating conditions under which investors are likely to rely on their mental shortcuts while making investment decisions. This study examines the influence of four heuristic biases viz. representativeness, overconfidence, anchoring, and gambler’s fallacy on cryptocurrency investment decision-making. It also examines the moderating role of investment experience on the relationship between these heuristic biases and investment decision making. The study uses Partial Least Square Structural Equation Modelling (PLS–SEM) to examine the survey data from 604 individual investors investing in the cryptocurrency market in India. The findings indicate the significant influence of representativeness bias, anchoring bias, and gambler’s fallacy bias on investment decision in cryptocurrency market. Whereas, overconfidence bias showed insignificant impact. The results of moderation analysis indicates that investment experience had no effect on the relationship between heuristic biases and investment decisions. It suggests that behavioral biases exist regardless of investing experience. The findings of the study provide valuable insights into the different behavioral biases of the cryptocurrency market investors. The study offers practical, academic as well as implications for regulators. This study exclusively relied on heuristic biases. This has been considered as the limitation of the study. In reality many other behavioral biases may influence investment decision.