An Impact of Behavioral Bias on Investment Decision Making of Individual Investors

Abstract

Behavioral finance has gained increasing prominence in understanding the role of psychological factors in shaping investment decisions. This study aims to investigate the impact of various behavioral biases on the investment decision-making process of individual investors. Specifically, it examines the prevalence and influence of biases such as confirmation bias, loss aversion, herding behavior, overconfidence, and regret aversion among individual investors. The study employs a quantitative approach, collecting data through a structured questionnaire from a sample of 201 individual investors. Descriptive statistics, correlation analyses, chi-square tests, and reliability measures are utilized to analyze the data and assess the relationships between behavioral biases, demographic factors, investment characteristics, and investment decisions. The findings reveal that behavioral biases are prevalent among the respondents, with varying degrees of influence on their investment decisions. Significant associations are observed between certain biases and factors such as annual income, percentage of investment from savings, frequency of investments, and investment types. For instance, individuals with higher incomes exhibit slightly more loss aversion tendencies, while those investing a higher percentage of their savings tend to demonstrate greater confirmation bias. The study contributes to the understanding of behavioral finance by providing empirical evidence on the impact of various biases on individual investors' decision-making processes. It highlights the importance of recognizing and mitigating these biases to promote more informed and rational investment decisions. The findings have implications for individual investors, financial advisors, and policymakers in developing strategies to enhance investment decision-making and overall financial well-being.