Based on a survey of behavioral finance literature, this paper presents a descriptive model of individual investor behavior in which investment decisions are seen as an iterative process of interactions between the investor and the investment environment. This investment process is influenced by a number of interdependent variables and driven by dual mental systems, the interplay of which contributes to boundedly rational behavior where investors use various heuristics and may exhibit behavioral biases. In the modeling tradition of cognitive science and intelligent systems, the investor is seen as a learning, adapting, and evolving entity that perceives the environment, processes information, acts upon it, and updates his or her internal states. This conceptual model can be used to build stylized representations of (classes of) individual investors, and further studied using the paradigm of agent-based artificial financial markets. By allowing us to implement individual investor behavior, to choose various market mechanisms, and to analyze the obtained asset prices, agent-based models can bridge the gap between the micro level of individual investor behavior and the macro level of aggregate market phenomena. It has been recognized, yet not fully explored, that these models could be used as a tool to generate or test various behavioral hypothesis.

Additional Metadata
Keywords agent-based artificial financial markets, behavioral finance, cognitive modeling, financial decision making, investor behavior
JEL Corporate Finance and Governance (jel G3), Corporate Finance and Governance: Other (jel G39), Business Administration and Business Economics; Marketing; Accounting (jel M)
Publisher Erasmus Research Institute of Management
Persistent URL
Series ERIM Report Series Research in Management
Journal ERIM report series research in management Erasmus Research Institute of Management
Lovric, M, Kaymak, U, & Spronk, J. (2008). A Conceptual Model of Investor Behavior (No. ERS-2008-030-F&A). ERIM report series research in management Erasmus Research Institute of Management. Erasmus Research Institute of Management. Retrieved from