An Analysis of Behavioral Biases in Investment Decision-Making

Aanchal Sharma () and Bhavna Prajapati ()
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Aanchal Sharma: ITM University, School of Commerce Management and Research
Bhavna Prajapati: ITM University, School of Commerce Management and Research

A chapter in Proceedings of the 5th International Conference on the Role of Innovation, Entrepreneurship and Management for Sustainable Development (ICRIEMSD 2024), 2024, pp 3-16 from Springer

Abstract: Abstract This study investigates the impact of cognitive and emotional biases on the investment decisions of individual investors in Chhattisgarh. Data were gathered from 100 participants through a comprehensive survey questionnaire that evaluated cognitive biases, including overconfidence, anchoring, confirmation bias, availability bias, and loss aversion, in addition to emotional biases such as fear of missing out (FOMO), herding behavior, regret aversion, and overoptimism. The descriptive analysis indicated varying levels of these biases among the participants, revealing prevalent behavioral trends in their investment decision-making processes. Correlation analysis indicated moderate positive associations between these biases and investment choices, while ANOVA findings demonstrated significant differences in decision-making based on the severity of cognitive and emotional biases. The regression analysis highlighted the predictive influence of these biases, illustrating their role in shaping investors’ decisions, including risk perception, portfolio composition, and overall investment performance. The study reinforces the importance of behavioral finance in explaining investor behavior, while its practical recommendations emphasize the need for educating investors and employing behavioral strategies to reduce the influence of biases. While this study offers valuable insights, it also recognizes limitations, including the relatively small sample size and restricted applicability, which point to potential areas for additional investigation. Future studies could examine the effects of cultural, technological, and interdisciplinary factors on behavioral finance to gain a deeper understanding of the mechanisms influencing investor decision-making. In summary, the results add to the expanding body of knowledge in behavioral finance, improving comprehension of how biases impact financial choices in the marketplace.

Keywords: Investment decisions; Behavioral biases; Cognitive biases; Emotional Biases (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-612-3_2

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DOI: 10.2991/978-94-6463-612-3_2

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