The Influence of Personality Traits and Psychological Biases on Financial Decision-Making Evidence from Albanian Investors

Abstract

This study examines the interplay between personality traits and psychological biases in influencing investors' decision-making, focusing on the behavioral patterns of Albanian investors. Applying the Big Five Personality Model alongside behavioral finance frameworks, the research explores how dimensions such as openness, conscientiousness, extraversion, agreeableness, and neuroticism correlate with common behavioral biases, including overconfidence, loss aversion, herding, and regret aversion. Using Pearson correlation analysis, the study reveals significant patterns: extraversion and openness are positively linked to overconfidence, while neuroticism exhibits dual behavior—positively associated with herding and loss aversion but negatively with overconfidence. Additionally, openness demonstrates a negative correlation with herding, suggesting its role in fostering autonomous decision-making. These findings underscore the importance of personality-informed strategies in addressing behavioral pitfalls. Based on structured interviews with a purposive sample of 180 Albanian investors, the study highlights how socio-economic and cultural legacies contribute to behavioral bias formation. The insights are valuable for financial advisors and policymakers aiming to implement personalized interventions that promote more rational investment choices.