Effect of Behavioral Biases on Trade Earnings of Traders in Kongowea Market, Mombasa County, Kenya

Abstract

The aim of the research study was to establish the effect of behavioural biases on trade earnings of traders in Kongowea Market. The research was anchored on the prospect theory, regret theory and heuristics theory. The study used a descriptive research design in the form of a survey to examine behavioural biases affecting trade earnings of traders in Kongowea market, Mombasa County. From a population of 1396 licensed traders, the study used a sample of 140. The study targeted a sample of 140 licensed traders at the Kongowea Market in Mombasa County. However, the responses were obtained from 77 traders this represents a 55% rate of response and was regarded adequate for the study. On Gender, the male respondents were 55% and the female 45%. Majority of the traders were above 40 years of age. On experience in trading, the majority had traded for between 7 to10 years. Most traders also were the ones dealing with vending of second hand clothes. All the biases were found to be present in the trading activities at Kongowea market. The study concluded that behavioural biases affected trade earnings of traders at Kongowea Market. Trade earnings were moderately and negatively correlated to all the behavioural biases. The effect of behavioural biases on trade earnings was however 19.2% of the total variation. This means that 80.8% of the variation of trade earnings was not captured in this study. The study recommended that the ministries of trade and industry in both the national and county governments to come up with different training programs to minimize these biases. The study also recommends that traders should be informed on the existence of the psychological biases in trading decisions and that it should be provided for in the decision-making process.