Albert Einstein once said, "Compound interest is the 8th wonder of the world." Leveraging its full potential requires starting to invest early; however, many college students fail to do so, despite the widespread accessibility of financial resources and investing apps today. Students are surrounded by investing apps, social media flooded with finance content, and conversations about the market with peers, therefore additional factors must also play a role in students' decisions to invest or not. In my proposed research, I examine the role of behavioral biases in students' investment decisions by testing three key behavioral channels: prospect-theory tendencies (loss aversion and reference dependence), overconfidence, and herd behavior, to determine whether they help explain differences in investment participation. The data is collected by distributing a Qualtrics survey to currently enrolled U.S. college students (community college, undergraduate, master's, and PhD) recruited through CloudResearch. The survey includes short questions that measure each channel and a standard financial literacy module. Responses are coded, and some are combined into index measures, with higher values indicating stronger bias tendencies. Using a sample of 230 respondents, I estimate logistic (and probit) regression models with investment participation as the dependent variable, including all bias measures (in index and disaggregated components), controlling for financial literacy, gender, and employment status. Preliminary results show that herd behavior and overplacement (an overconfidence component) are positive and statistically significant predictors of participation, while the prospect-theory measures are not significant in the current specifications. This implies that traditional personal finance education, which primarily focuses on basic concepts, may be insufficient to improve student financial outcomes. Instead, we may need to incorporate education on behavioral factors such as awareness of overconfidence and how social interactions influence investing decisions. This is especially important given how much investing content spreads through peers and social media.
Acknowledgements: Professor Kaywana Raeburn for advising this Seward minor and project.