THE MEDIATING ROLE OF RISK TOLERANCE ON THE RELATIONSHIP BETWEEN EMOTIONAL BIAS AND INVESTMENT DECISION OF PENSION FUND ADMINISTRATORS IN NIGERIA

Abstract

Investment decision is very crucial in directly determining how an organization's resources are allocated, shaping its long-term finance, profitability and growth. As important as it is, investment decision made by managers on behalf of their organization may be susceptible to one form or more of emotional bias. This study examined influence of emotional behavioural biases on the investment decisions of Pension Fund Administrators (PFA’s) in Nigeria, which can lead to suboptimal strategies, compounded by risk tolerance. Drawing on behavioural finance theories, the study addresses how emotional biases—regret-aversion, status-quo bias, self-control bias —affect institutional decision-making within the pension fund sector. Using Survey research design, data were collected from licensed PFAs operating in Nigeria. Structural Equation Modeling (SEM) was employed to analyze the direct and mediated relationships between behavioural biases, risk tolerance, and investment outcomes. The findings reveal Regret Aversion and Status-Quo Bias are significant; while Self Control Bias is insignificant on Investment Decisions of PFA’s in Nigeria. In addition, the mediating effect of risk tolerance on Regret Aversion and Status-Quo Bias was significant, Self Control Bias was insignificant.  Based on these findings, this study highlights the critical role of risk tolerance in PFA’s mitigating these effects, better adaptability to market conditions and improved decision-making, even in the presence of emotional biases. These findings offer valuable insights for policymakers, financial advisors, and institutional investors aiming to improve the efficiency and resilience of pension fund management in Nigeria.