Emotional Biases, Financial Literacy and Investment Decisions of Members of Imarisha Savings and Credit Cooperatives Society, Kenya

Abstract

This study examined the effects of emotional biases on investment decisions among members of Imarisha SACCO in Kenya. The research was motivated by the rising cases of non-performing loans linked to irrational borrowing and investment behaviors by SACCO members. Anchored on Prospect Theory, Herding Theory, and Modern Portfolio Theory, the study adopted a positivist philosophy and employed an explanatory research design. A stratified random sample of 399 members was drawn from a target population of 151,000, and data was collected using a structured, pre-tested digital questionnaire. Reliability was confirmed through Cronbach’s alpha coefficients exceeding the 0.7 threshold. Data was analyzed using descriptive statistics, principal component analysis (PCA), correlation analysis, linear regression, and logistic regression through Gretl 2025b, R 4.5.1, and SPSS 26. The PCA results indicated that herd behavior bias was the most influential bias among SACCO members. Correlation analysis revealed positive relationships between emotional biases (overconfidence, loss aversion, and herd behavior), financial literacy, and investment decisions. Linear regression results showed that all dimensions of emotional biases and the mediating variable (financial literacy), significantly and positively influenced investment decisions. Furthermore, logistic regression indicated that these factors increase the likelihood of members making investment choices. The study recommends that Imarisha SACCO management develop policies and interventions to help members overcome emotional biases and enhance rational investment decision-making. It also advocates for the provision of professional advisory services to strengthen members’ financial literacy and investment capability. Future research should further explore herd behavior in different contexts to develop strategies that protect the public from exploitative investment schemes such as Ponzi and pyramid scams.