IMPACT OF COGNITIVE BIAS ON INVESTMENT DECISION OF PENSION FUND ADMINISTRATORS IN NIGERIA: THE MEDIATING EFFECT OF RISK TOLERANCE.
Unyime, Abasido Anthony , Mu’azu Saidu Badara, PhD , A. B. Dogarawa, PhD and Muhammed Yazeed
Volume 11 Issue 2
Abstract
Investment decisions are critical to the financial sustainability of institutional portfolios, especially for Pension Fund Administrators (PFAs) who manage large-scale retirement savings. This study examines the impact of cognitive behavioural biases namely representative bias, disposition effect, self-attribution bias, and herding bias on the investment decisions of PFAs in Nigeria. Drawing from Prospect Theory and heuristic-based decision models, the research explores how these biases lead to systematic errors in portfolio management. Using a quantitative survey research design and Structural Equation Modeling (SEM), data was collected from licensed PFAs across Nigeria. The study also introduces risk tolerance as a mediating variable, hypothesizing that PFAs with higher risk tolerance are better equipped to mitigate the adverse effects of cognitive biases. Findings reveal that representative bias, disposition effect, and herding bias significantly affect investment decisions, while self-attribution bias showed no direct influence. However, risk tolerance significantly mediated the relationships involving disposition effect and representative bias, but not herding and self-attribution. The study contributes to behavioural finance by offering a comprehensive model of cognitive biases in institutional investing. It also provides practical implications for PFAs and regulators to implement training and decision frameworks that reduce behavioural inefficiencies and protect pension contributors’ wealth in the face of market uncertainty. Keywords: Investment, Pension Fund Administrators, Cognitive Bias
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