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CHAPTER THREE

The Intervention of Behavioral Biases in Investment Decision-Making among young

professionals in the Nairobi County

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Research Design

3.1 Introduction

The chapter provides the research design to be used in studying the effects of behavioral

biases on the process of making investment decisions by young professionals in the Nairobi

County, Kenya. The research design is important because it provides the blueprint of how data

should be collected, measured and analyzed in a manner that will address the research problem,

which was identified in the previous assignments. The overall research strategy, target

population, sampling methods, research instruments, data collection procedures, as well as, data

analysis techniques are described in detail in this chapter. The aim is to make sure that the

research is able to study the effect of psychological biases to the extent of overconfidence, loss

aversion and herding behavior on the way young professional in Nairobi makes investment

decisions.

3.2 Research Design

The research design that will be adopted in this study is a mixed research design which is

a combination of quantitative and qualitative design (Takona, 2023). The rationale behind

adopting such a mixed-method is to be able to receive both quantitative data, which can offer

objective information about the prevalence of biases, and the more in-depth explanation of the

nature of these biases in decision-making as it can be seen through interviews.

The quantitative aspect will be to administer the structured questionnaires to conduct data

gathering of a greater number of young professionals involved in investment projects. The

survey will be aimed at evaluating the rate of investment decisions as well as the types of biases

that occurred (overconfidence and loss aversion), and impacts of these biases on trading

frequency, portfolio diversification, and risk-taking.

The qualitative part will be the semi-formal interview with a relatively smaller group of

respondents. Such interviews will be aimed at studying personal perceptions and experience,

which will provide deeper and more valuable insights into the impact of behavioral biases on

individual investment decisions (S. Suriyanti & Fitriani Mandung, 2024). The interviews,

through open-ended questions, will give the interviewer an insight into the psychological and

cultural factors that may not be adequately covered using surveys only.

Such a combination of the methods will enable the holistic approach towards the answers

to the research questions, especially:

1. What is the impact of overconfidence, loss aversion and herding behavior in investment

decision-making of young professionals in Nairobi?

2. How do financial literacy levels moderate these biases, and what can be done to reduce the

effects of these biases on decision-making?

The targeted population (sampling frame) consists of individuals experiencing

homelessness and residing in the New York City area.

3.3 Population (Sampling Frame)

The population that will be targeted in this study is young professionals in the age group

of 25-35 years of age living in Nairobi County and engaged in the investment activities (Milcah

Mulu Mutuku & Kipkebut, 2023). The interest in this group arises due to the emergence of

digital trading sites, mobile-based money transfers (M-Pesa), as well as the growing interest of

young people in the Nairobi Securities Exchange (NSE) and increases in the number of financial

players amongst young professionals in Nairobi.

These young workers represent different fields such as finance, technology, education,

and healthcare, which represent diverse professional backgrounds of people performing in the
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field of investment. In the effort of making sure that the sample is reflective of the greater

population, the study will narrow down to those professionals who have engaged in a form of

investment at least 6 months. This requirement will be followed by ensuring that the participants

involved are experienced enough to offer valuable information on their behaviors and decision-

making procedures in investment.

The sample will also have geographical constraint of the Nairobi County, in that it

accommodates a high population of young professionals in Kenya, especially those who are

involved in both formal and informal financial markets.

3.4 Sampling Design

In this research, stratified random sampling shall be applied in selecting the participants.

One of the stratifications will be categorizing the population by their occupations, types of

investments (e.g., investing in the stock market, real estate, mobile money), and investment

experience (e.g., beginner, intermediate, advanced). Such stratification of the population will

enable the study to pick on the differences in the bias in the behavior within the various groups

and make sure that the sample is a mirror of the diverse types of investment and professional

backgrounds.

A random sample will be chosen out of each of these strata so as to have unbiased

representation. The population sample will be approximated to 200 respondents, and this is

adequate to provide credible outcomes, not to mention that a sample of this size will provide

variety in the sample population (Lohr, 2021). The formula Cochran used to calculate the sample

size of 95 as the confidence level will be used to determine the sample size because it is widely

accepted that such a level is adequate when it comes to generalizing the findings to the larger

group of young professionals in Nairobi.

The sampling frame will consist of the users of the social media such as linked in,

Facebook and twitter, since these are the places where young professionals in Nairobi are fond of

using. Also, it can be extended to reach out to the wider audience with the help of professional

associations, online trading service and mobile money service.

3.5 Research Instrument

A structured questionnaire will be the main data collection tool to be used in this study as

it will be well designed to obtain both quantitative and qualitative data. The questionnaire will be

divided into several parts to address the different issues of the research problem:

 Demographic Information: In this section, questions regarding the age of the

respondents, sex, the level of education, and the occupation will be included as well as the

investment experience. This fact will be used to inform the study and make sure that the sample

is representative of the general population of young professionals in Nairobi.

 Behavioral Biases: Here, the section will be based on the assessment of the

impact of overconfidence, loss aversion, and herding behavior on investment decisions. The

questions will include Likert-scale items to ask the participants to answer the questions

according to the degree of the manifestation of these biases, depending on the types of

investments they make. As an illustration, they can be questioned about their frequency of

excessively estimating the market knowledge or how they respond when their financial gains are

lost.

 Investment Decision-Making: This part will evaluate the behavior of trading

frequency, portfolio diversification and risk tolerance. The respondents will be questioned about

the nature of their investment in the market, how frequently they buy and sell stocks or their

portfolios as a response to the market changes.

Besides the questionnaire, a smaller sample comprising of 20-30 respondents will be

interviewed in semi-structured interviews. The focus of these interviews will be on the personal

investment experiences and how they influence their decision-making and how they view

financial literacy to reduce these biases (Suresh G., 2021). Semi-structured form is flexible in

nature, which will enable the researcher to dig deeper based on what the interviewees may be

responding.

3.6 Data Collection

The data collection process will be conducted in two different steps to gain a thorough

coverage of the research problem:

Phase 1: Survey Distribution: The questionnaires (structured questionnaires) will be

given to the subjects through email, social networks (LinkedIn, Facebook, Twitter), and

professional networks. Participants will be given a week in which they will fill and hand over

their responses. The questionnaire will be anonymous, and, therefore, respondents will not feel

intimidated to share their experiences and views.

Phase 2: Interviews: The interviews will be conducted on a small group of survey

sample participants. These interviews will be done face-to-face or on video conferencing

applications such as Zoom in order to address the schedules of the participants. The interviews

will be tape recorded and transcribed to be analyzed.

A pilot study will be done before full data collection to determine the validity and clarity

of the questionnaire and interview guide on 10 respondents. The pilot study will provide

feedback that can be used to adjust the research instruments and make sure that they are useful in

recording the targeted information.

Data analysis and presentation will be conducted using descriptive statistics.

3.7 Data Analysis and Presentation will be carried out based on descriptive

statistics.

The analysis of the data will be carried out in two major steps both quantitative and

qualitative as follows:

i. Quantitative Analysis: The data of the survey will be analyzed with the help of the

descriptive statistics that will be used in order to summarize the demographic data and

responses in terms of the behavioral biases. Correlational analysis and regression analysis

of the relationship that exists between identified behavioral biases and investment

decision-making behaviors will be applied using inferential statistics. Data will then be

analyzed either using SPSS or excel and the results provided in a tabular, chart, and graph

form to represent some major findings.

ii. Qualitative Analysis: Thematic analysis will be used to analyze the interview data,

which will undergo transcription. This will entail the identification of recurring themes,

trends, and understanding to do with the role of biases in the decision-making process of

investments. The analysis will give a better insight into the psychological aspects that

support the investment decisions of the young professionals in Nairobi.

The ultimate findings will be given in a mixture of quantitative table representations and

qualitative stories, and the collective discourse of the findings. The combination of the two forms

of data will be a balanced view of how behavior bias affects the investment decision-making

process.

Conclusion

The 3rd chapter consists of the discussion on the research design regarding the effect of

behavioral biases on the investment decision-making process among young professionals in the
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Nairobi County. Through the use of both quantitative surveys and qualitative interviews, the

study intends to give a detailed analysis of the role of overconfidence, loss aversion, and herding

behavior in the process of making financial decisions. The methodology has been described in

this chapter featuring the research methodology, sampling methods, data collection, and data

analysis process.
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Reference

Takona, J. P. (2023). Research design: qualitative, quantitative, and Mixed Methods

Approaches / Sixth Edition. Quality & Quantity, 58(1), 1011–1013.

[Link]

S. Suriyanti, & Fitriani Mandung. (2024). Exploring Financial Behavior: A Qualitative

Investigation into Psychological Factors Influencing Risk Preferences and Investment Decisions.

Golden Ratio of Finance Management, 4(2), 100–112.

[Link]

Milcah Mulu Mutuku, & Kipkebut, M. (2023). Influence of Socio-Demographic Factors

on the Performance of Youth-Owned Enterprises in Nakuru Municipality. The International

Journal of Business Management and Technology.

[Link]

Lohr, S. L. (2021). Sampling. Sampling Design and Analysis.

[Link]

identifierName=doi&identifierValue=10.1201/9780429298899&type=googlepdf

Suresh G. (2021). Impact of Financial Literacy and Behavioural Biases on Investment

Decision-making. FIIB Business Review, 13(1), 231971452110354.

[Link]
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