How Gen Z and Gen X Battle Biases : A study on the impact of psychological biases in investment decisions across generations

Sammanfattning

Background: Generation Z is the first generation to grow up with the Internet as a part of their daily lives, shaping their investment behavior. They favor innovative investments, contrasting Generation X’s preference for stable portfolios. The younger generation displays irrational behavior, contributing to market volatility. Sweden is facing higher interest rates after a prolonged period of low rates. Despite rising interest rates, young shareholders are increasing. Purpose: This study aims to explore how psychological biases affect investors’ trading activity and the impact of psychological biases on Generation Z and Generation X during elevated interest rates. It focuses on three behavioral biases: overconfidence, herd behavior, and loss aversion. With the growing involvement of young investors in the financial market, this study aims to provide insights for investors, decisionmakers, and other stakeholders to raise awareness of the effects of psychological biases in investment decisions. Method: This study used a quantitative strategy to apply a positivistic, deductive research approach. The data was collected through a survey where which 132 respondents participated. The empirical data was analyzed using simple linear regression, binary logistic regression, and Mann-Whitney U-test. Conclusion: The results support some of the hypotheses. Results indicate a significant influence of overconfidence on investment behavior and that Generation Z showed larger tendencies of overconfidence than Generation X. Herd behavior affects investment behavior but no generational differences could be found. Additionally, Generation Z was less loss-averse compared to Generation X, although it does not impact investment behavior.