A Model to Identify the Impact of Behavioral Biases and Financial Literacy and Their Role on Investor Decision Making (Based on Grounded Theory)

Investigation and behavioral finance analysis of investors and market participants in the nascent field of financial management is one of the topics. Integration can be considered classical economics and sciences of psychology and decision-making. While taking note of the recent developments on the stock exchange, have all the internal and external factors considered in the nuances and micro-sighted because this process of thought, conscience, and a mentally wide variety of people (investors) that has this is a subjective understanding is vital for transparency and a better understanding of the market. Since the 1980s, logical investment hypotheses and efficient markets have been ruined by appearing in behavioural finance literature. The mentioned literature states that some biases cause decision-making problems while trading shares. Tversky and Kahneman, in the 70s, in a series of articles, achieved the development of applications of psychological knowledge in finance and economy. This research gradually became known as behavioral finance in the 90s as a field of financial matters. In the behavioural finance paradigm, the prevalent assumption of viewing a human being as a rational entity who is always satisfied in optimizing his/ her benefits is questionable. Behavioral finance asserts that the attitude of investors to the capital market is a function of investment psychology, ideas and position about risk. Research shows that many micro and macro factors that are measurable and non-measurable affect the behavior of investors. The advocates of Behavioral finance knowledge strongly believe that awareness of psycho-cognitive" tendencies in the investment realm is essential and requires serious improvement in expanding the scope of studies. However, academicians and professionals who are advocates of classic financial schools do not believe in examining the behavioral aspects of humans and their impact on financial decisions as an independent field of study. Yet, both quantitative and qualitative advancement of experimental studies within this field indicates the importance of research on behaviors in financial markets. Financial literacy is essential in understanding investors’ behavior in advanced and emerging stock markets. While previous studies have shown a positive association between improved financial literacy levels and the quality and performance of investors’ decisions, the dynamics of this process have not been adequately examined. This study aims to identify influential factors in individual investor's decision-making and designing a model in the capital market. Due to the necessity of the subject and the lack of a comprehensive model that shows the factors influencing investors' decision-making in the Iran capital market, the present study developed this model.  The methodology of this research is a development, exploratory and qualitative research in terms of result, objective and method, respectively. The research method is based on the strategy of the data foundation theory method with the coding method and paradigm model of Strauss and Corbin. The statistical population of the present study includes university experts and experts in the capital market who have continued to collect information through interviews until saturation; also, a sample of the snowball method has been used based on the opinions of 50 experts and the Strauss and Corbin system approach. The data collection tool was a structured interview, and the focus group continued with the subject matter experts until the theoretical level was reached. Also, using open coding, axial coding and selective coding, the concepts, categories, specifications and dimensions of the categories that were classified into contextual factors, causal conditions, strategies, intervening conditions, and outcomes were extracted and presented and Approved by the expert opinion of the expert.  This study provides new insight into the factors affecting decision-making. The research data were analyzed using open, axial and selective coding methods, which is a component of the grounded theory approach with the aid of Maxqda 2018 software; finally, the integrated model of developing investor decision-making is provided, which resulted in the identification of 2 categories of causal conditions, 6 categories of phenomena/context, 9 categories of intervening conditions, 7 categories of action strategies and 7 categories of consequences related to the main phenomenon of research.  Based on the research results, individual investors can improve the quality of their decision-making and make more effective investment decisions by implementing the presented strategies and identifying and reducing their mental biases. These strategies include capital market knowledge, consulting with the expert capital market, extensive training in stock exchange concepts, employing specialized and experienced brokers in the capital market, reforming the structural system of the stock exchange, transparency of financial information, expansion of the secondary market, security of investment, Providing the ground for the investor not to leave the capital market.