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Behavioral Factors Driving Foreign Direct Investment in Emerging Markets
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Author(s): Roop Raj (H.N.B. Garhwal University, India), Chadalavada Lakshmi Nath (Spoorthy Engineering College, India), Ann Mary Cherian (Christ College, Irinjalakuda, India), R. Sethumadhavan (Presidency University, India)and P. Selvakumar (Department of Science and Humanities, Nehru Institute of Technology, Coimbatore, India)
Copyright: 2025
Pages: 26
Source title:
Unveiling Investor Biases That Shape Market Dynamics
Source Author(s)/Editor(s): Xu Xiong (City University, Malaysia)and Loang Ooi Kok (Universiti Malaya, Malaysia)
DOI: 10.4018/979-8-3693-9380-2.ch002
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Abstract
Behavioral factors in Foreign Direct Investment (FDI) represent a critical dimension in understanding the dynamics of international business and investment decisions, extending beyond traditional economic and financial analyses. These behavioral factors include cognitive biases, heuristics, cultural influences, and emotional responses, which can significantly impact how investors evaluate opportunities, assess risks, and ultimately make investment choices. For instance, an investor may be overly optimistic about the potential success of a foreign market based on previous favorable experiences, leading to an underestimation of potential risks and challenges. These biases can result in suboptimal investment decisions and impact the overall success of FDI ventures. Heuristics, or mental shortcuts used to simplify decision-making, also play a significant role in FDI. Investors often use heuristics to cope with the complexity and uncertainty of international markets.
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