BEHAVIORAL BIASES IN INVESTMENT DECISION-MAKING: A SYSTEMATIC REVIEW

Abstract

Behavioural finance has become a significant area of study that contests the premises of conventional financial theories, which predominantly rely on rational decision-making. Contrary to the belief that investors consistently behave rationally, increasing evidence indicates that psychological factors and cognitive biases profoundly affect investment choices.

The review paper employs qualitative research methods which are based on a detailed examination of academic sources. The research study uses an extensive collection of academic materials which includes scholarly articles and research papers from various international journals and databases. The selection process emphasized literature that provides insight into investor behavior in equity markets, particularly under the influence of cognitive and emotional biases. The review process uses the PRISMA framework to establish transparent routes which allow researchers to validate their results. The research study shows that behavioral factors affect investor decision-making which results in investors choosing paths which differ from the rational approaches which traditional finance theories propose. The investment decision-making process suffers from these biases which include overconfidence and loss aversion and herd behavior and mental accounting. The negative results of these actions lead to consequences which impact multiple areas including personal wealth growth and corporate financial success and capital market operational efficiency. The study results demonstrate how essential it is to combine behavioral insights with financial models and investor education programs.

The paper investigates the research which studies how people make decisions about their investments. The research study conducts analysis to recognize standard patterns and theoretical frameworks and empirical findings which show how psychological factors affect investor behavior thereby disproving traditional financial theories. The review paper employs qualitative research methods which are based on a detailed examination of academic sources. The research study uses an extensive collection of academic materials which includes scholarly articles and research papers from various international journals and databases. The selection process emphasized literature that provides insight into investor behavior in equity markets, particularly under the influence of cognitive and emotional biases. The review process uses the PRISMA framework to establish transparent routes which allow researchers to validate their results. The research study shows that behavioral factors affect investor decision-making which results in investors choosing paths which differ from the rational approaches which traditional finance theories propose. The investment decision-making process suffers from these biases which include overconfidence and loss aversion and herd behavior and mental accounting. The negative results of these actions lead to consequences which impact multiple areas including personal wealth growth and corporate financial success and capital market operational efficiency. The study results demonstrate how essential it is to combine behavioral insights with financial models and investor education programs.