Behavioural biases and market resilience: an Egyptian perspective on prospect theory

Abstract

This study analyses how prospect theory affects individual investment decisions on the Egyptian Stock Exchange amidst political and economic instability. This study creates a new ground to the limited Egyptian literature by investigating the impact of the recent Russian-Ukrainian war and the Israeli-Palestinian geopo- litical conflict on the investment behaviour. Unlike prior research that concentrates on the macroeconomics variables and financial policies, this research has been focusing on the behavioural lens to interpret these effects. Through empirical data on how certain biases affect decision-making, it merges the behavioural finance theory and turbulent regimes. Data were collected on 300-investor structured survey through reli- ability and validity tests, normality tests, correlation tests, and OLS regression modelling. The findings are that loss aversion and regret aversion significantly affect investor 95 choice amidst instability, and mental accounting and self-control has no effect. These results are in line with existing behavioural finance literature (Otaify, 2023; Gamal & Wahba, 2025) and advances its application in markets with increased economic and political uncertainty. The study concludes with prac- tical implications on investors and regulatory policies, and underscores improved financial choice-making processes and effective regulatory policies amidst instability in emerging markets.