A study published in Acta Psychologica set out to investigate how much of an investor’s behavior is shaped by stable personality traits, how much by mental shortcuts, and whether a good grounding in financial knowledge can buffer people from making biased decisions.
The question behind the research
Traditional finance tends to assume investors are rational calculators who weigh probabilities and pick the best option. Behavioral finance, a younger field, argues that psychology gets in the way. People rely on emotions, habits, and mental shortcuts that can push them toward choices they’d never defend on paper.
Sajjad Hanif of National University of Computer and Emerging Sciences in Pakistan, together with colleagues from Bahria University Islamabad and PMAS-Arid Agriculture University Rawalpindi, wanted to pull several strands of this research together. Specifically, they asked whether the “Big Five” personality traits and a well-known mental shortcut called availability bias influence how people invest — and whether financial literacy can soften those influences.
A quick primer on the concepts involved. The Big Five personality traits are extraversion (outgoing, energetic), neuroticism (prone to anxiety and mood swings), openness to experience (curious, willing to try new things), conscientiousness (organized, disciplined), and agreeableness (cooperative, trusting of others). Availability bias is the tendency to judge how likely something is based on how easily examples spring to mind. If you’ve recently read news stories about a plane crash, you might overestimate how risky flying actually is.
How the study was set up
The researchers recruited 239 finance students from institutions in Islamabad, Pakistan. All had taken at least two finance courses and understood basic concepts like portfolio management and risk. About 63% were men and 37% were women, with most in their early twenties.
Participants completed questionnaires measuring their personality traits, availability bias, and financial literacy. Then came the experimental piece: they were presented with a simulated asset market, adapted from prior research, where they had to choose stocks and build a portfolio. Those investment decisions were later scored based on actual profits and losses the portfolios generated. A separate scenario-based task measured their risk attitude — whether they leaned toward safer or riskier payoffs.
The researchers then ran regression analyses to see which traits and biases predicted investment performance and risk-taking, and whether financial literacy or gender changed the strength of those relationships.
What personality revealed about investment choices
Several personality traits were linked to how well participants did in the investment task, though not always in the direction one might expect.
Extraversion was associated with worse investment outcomes. The researchers interpret this as a reflection of overconfidence: outgoing, energetic individuals may jump into decisions with more enthusiasm than analysis, leading them to pay too much for risky assets or trade too frequently.
Neuroticism was also linked to poorer decisions, though the effect was weaker. People high in neuroticism tend to be more reactive to negative events and mood swings, which can produce indecisiveness or excessive caution at the wrong moments.
Openness to experience went the other way — it was associated with better investment outcomes. Participants who scored higher on curiosity and willingness to try new things appeared more comfortable exploring opportunities and less paralyzed by fear of loss.
Agreeableness was linked to worse decisions. The authors suggest that highly agreeable people may lean too heavily on the opinions of others, suppressing their own judgment and following conventional thinking rather than analyzing the situation themselves.
Conscientiousness, somewhat surprisingly, showed no significant direct relationship with investment outcomes in this sample. Availability bias showed a weak negative link with investment decisions, consistent with the broader idea that over-relying on easily recalled information can distort judgment.
When the researchers looked specifically at risk attitude using a separate logistic model, neuroticism stood out: people high in neuroticism were about 1.6 times more likely to fall into the risk-taking group. This complicates the common assumption that anxious people always play it safe, and suggests that emotional reactivity can sometimes push people toward impulsive, riskier bets.
Where financial literacy made a difference
One of the study’s central questions was whether financial knowledge could change how personality traits translate into investment choices. The answer was: sometimes, but not universally.
Financial literacy strengthened the link between conscientiousness and good investment decisions. Put another way, organized, disciplined people made noticeably better choices when they also had solid financial knowledge. Discipline alone wasn’t enough; it needed something to work with.
Financial literacy also interacted with agreeableness in a way that helped counteract the downsides of being too deferential. Highly agreeable people who had strong financial knowledge fared better than agreeable people without it, suggesting that knowledge gave them a framework to lean on instead of defaulting to others’ opinions.
For the other traits — extraversion, neuroticism, openness — and for availability bias, financial literacy did not significantly change the relationships. This is a more nuanced picture than the blanket claim that financial education fixes biased decision-making. Knowledge appears to help with some behavioral tendencies more than others.
The gender finding that wasn’t
The researchers also tested whether gender changed how personality traits influenced investment decisions. With one small exception involving agreeableness, gender did not meaningfully moderate the relationships.
This contrasts with older research suggesting women are systematically more risk-averse than men in financial contexts. The authors point to newer evidence indicating that gender gaps in financial behavior may be narrowing, and note that their sample skewed male, which limits how much can be read into the null result.
What it means for investors, educators, and firms
For financial advisors and firms that serve individual investors, the findings suggest that personality is a real input into decision quality, not just a soft variable. Someone who is outgoing and confident is not automatically a better investor than someone who is cautious and introverted, and in this study, the opposite was often true.
The financial literacy results point toward a practical takeaway for educators and policymakers: financial education appears to help, but it may work best when paired with personality traits like conscientiousness. Programs that only teach compound interest formulas may miss a chance to help people recognize their own tendencies toward overconfidence or conformity.
A few caveats are worth keeping in mind. The sample was relatively small, drawn from finance students in one country, and selected through convenience sampling. The study is cross-sectional, meaning it captures a snapshot rather than tracking behavior over time. And the logistic model for risk attitude explained only a small fraction of the variation, which the authors acknowledge as a limitation. The findings are best read as suggestive patterns worth testing in larger and more diverse populations, particularly among working-age investors making real portfolio decisions with their own money.
Still, the broader message lines up with a growing theme in behavioral finance: who you are shapes how you invest, and knowing that about yourself may be as valuable as knowing the market.
