BEHAVIOURAL BIAS AND INVESTMENT DECISIONS OF PENSION FUND ADMINISTRATORS IN NIGERIA: THE MEDIATING EFFECT OF RISK TOLERANCE

Abstract

Investment decision-making is critical in financial management due to its impact on resource allocation, profitability, and organizational growth. However, such decisions, especially within institutional settings like Pension Fund Administrators (PFAs) in Nigeria, are often influenced by behavioural biases. This study investigates the effects of both cognitive and emotional biases—including regret-aversion, status quo bias, self-control bias, representative bias, disposition effect, self-attribution bias, and herding—on PFAs’ investment decisions. It also examines the mediating role of risk tolerance in these relationships. Using a survey research design, data were collected from licensed Nigerian PFAs and analyzed through Structural Equation Modeling (SEM). The findings indicate that disposition effect, herding, regret aversion, representative bias, and status quo bias significantly affect investment decisions. In contrast, self-attribution and self-control biases showed no significant influence. Furthermore, risk tolerance significantly mediated the effects of disposition effect, regret aversion, self-attribution, and status quo bias, but not herding, self-control, or representative bias. The study highlights risk tolerance as a key factor in moderating behavioural bias impacts, showing that PFAs with higher risk tolerance make more rational and adaptive investment decisions. It contributes to behavioural finance literature by applying prospect and disappointment theories in institutional contexts. The practical implications suggest PFAs implement training, structured decision-making frameworks, and regulatory oversight to counteract bias. These insights are valuable for policymakers and financial practitioners seeking to enhance the performance and stability of Nigeria’s pension fund sector.