American International Journal of Research and Innovation

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Behavioral Biases and Investment Decision-Making among Retail Investors

Author(s) Martin Weber
Country United States
Abstract Investment decision-making among retail investors is not influenced solely by financial knowledge, market information, and economic indicators; it is also significantly shaped by psychological factors and behavioural tendencies. Behavioral finance research has demonstrated that investors frequently deviate from completely rational decision-making due to cognitive limitations, emotional responses, and systematic biases. These behavioural biases can influence asset selection, risk perception, portfolio management, and investment outcomes.
This study examines the influence of behavioural biases on investment decision-making among retail investors. The research explores major behavioural factors, including overconfidence bias, loss aversion, herding behaviour, confirmation bias, and anchoring effects, and evaluates their impact on investment choices. A conceptual analytical framework supported by simulated observations is developed to understand how psychological tendencies affect investment behaviour and financial decision quality.
The findings indicate that behavioural biases play a significant role in shaping retail investment decisions. Investors influenced by emotional reactions and cognitive shortcuts may demonstrate excessive trading behaviour, inaccurate risk assessment, and inefficient portfolio choices. The study highlights that improving financial awareness, behavioural understanding, and investment discipline can support more rational decision-making processes.
The research contributes to behavioral finance literature by explaining the relationship between psychological factors and retail investment behaviour. It provides practical insights for individual investors, financial advisors, and policymakers seeking to improve investment decision quality through behavioural awareness and informed financial practices.
Keywords Behavioral Finance, Investment Decision-Making, Retail Investors, Cognitive Biases, Investor Psychology, Risk Perception, Financial Behaviour
Field Engineering
Published In Volume 2, Issue 5, September-October 2020
Published On 2020-09-21
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