The Effect Of Behavioural Biases On Investment Decisions By Real Estate Developers In Nairobi, Kenya

Abstract

Although the behavioral biases are expected to produce negative effects on investment decisions, they do not necessarily translate to a negative effect of investments. It is therefore crucial for real estate investors have awareness of any behavioral biases they may be prone to, and how they could affect their investments. This research seeks to add to the existing knowledge on behavioral biases focusing on real estate developers in Nairobi. Specifically, the study sought to determine the effect of over confidence, conservatism, regret aversion and over optimism on real estate developer’s decisions in Nairobi. There was a mixed research design. Population was the total of all 112 investors in Nairobi's real estate market. Forty real estate developers were chosen by stratified random sampling, and 200 respondents were purposefully chosen. Questionnaires that had both open and close-ended questions was used as the data collection instrument. Data reliability was tested using a Cronbach test. Validity was tested using internal consistency test. Analysis of the data was done using SPSS software. The statistical techniques employed included multiple regression analysis and descriptive statistics. From the regression analysis, the study found that overconfidence had a positive and significant regression coefficient. This leads to the conclusion that overconfidence has a significant positive effect on real estate decisions among developers. The study also found that conservatism had a significant negative regression coefficient with real estate decisions. Hence, this study concludes that conservatism has a negative effect on real estate decisions of developers in Nairobi County. The findings also showed that regret aversion had a positive and significant regression coefficient with real estate decisions by the developers. Hence, this study concludes that regret aversion has a positive and significant effect on real estate decisions in Nairobi County. Over optimism showed a positive but insignificant regression coefficient with real estate decisions. Hence, the study concludes that over optimism has no effect on real estate decisions among developers in Nairobi County. The study recommends that real estate developers in Nairobi increase their level of investment confidence; adopt the current ideas in the real estate market; research on the best investments for future profits and take advantage of them; and have considerable optimist in their real estate decisions.