Indian Behavioral Finance

Abstract

Behavioral finance is a relatively new field of study that combines cognitive psychology and thoughts of leaders in economics, finance, and behavioral psychology to explore the driving forces behind the financial decisions that people make. Making a decision is a complex procedure that embraces cognitive and psychological biases. The paper attempts to explore and document the literature available to review the biases in an Indian context, highlighting specific and variable factors that impact, such as personality traits, and plausibly explain the difference in the behavior from a traditional behavioral finance model. The review of literature suggests that behavioral finance in an Indian context has a pattern, which can be followed to interpret and understand the psychology of Indian investors. A conceptual framework is proposed that considers various factors that can enable understanding Indian behavioral finance. In particular, the impact of personality and financial determinants appear to be imperative to studying behavioral bias in the Indian context.