Investor Psychology and Decision Making: A Behavioural Finance Perspective

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DOI: https://doi.org/10.5281/zenodo.19553770

Moni Mishra and Harikesh Chingangbam (Lal Bahadur Shastri Institute of Management, Delhi)

This research is designed to investigate how four well known psychological biases – overconfidence, loss aversion, herd behavior, and anchoring – influence investment decisions made by retail investors in India. The methodological approach used for this study was descriptive where primary data was collected from 110 respondents via a structured questionnaire utilizing a five point Likert scale. The researcher adapted established behavioral finance literature for developing the constructs in the questionnaire and customized them to reflect the retail investing environment within India. The results of this research show that all four psychological biases – overconfidence, loss aversion, herd behavior, and anchoring – are very prevalent and strong among investors based upon the consistently high mean values associated with each of the respective items. In addition, loss aversion and herd behavior tend to be influenced by an investor’s level of investment experience, their risk attitude, and the investor’s perception of the market as a whole. Overall, the findings of this research indicate that even with increased levels of financial literacy and the widespread use of digital investing platforms, there continues to be an impact on the way that investors make their investment decisions due to various psychological factors. Therefore, this research provides empirical evidence regarding the behavior of retail investors and provides important information for financial educators, advisors, and future researchers who may conduct similar studies investigating behavioral patterns in emerging market economies.