Influence of Behavioral Biases on Individual Investor Decision Making

Pragati Yadav

Abstract


Rational decision making for an individual is coupled with a structured or reasonable thought process. Many a times individual investors’ behavior deviates far from rationality. Individual investor behavior is influenced by a variety of psychological heuristics and behavioral biases. First, investors make investment decisions based on various heuristics; they assume price as decision-anchor and are overconfident in their judgments. Second, their investment behavior is highly influenced by representativeness and they do lot of mental accounting in the sense of grouping their gains and losses while making decisions. The impact of herding in individuals’ investment decision-making is also significant. The purpose of this paper is to systematically review the literature published in past on behavioral biases in investment decision-making. Through this study, we have identified the various behavioral biases influencing the individual investor decision making.

Keywords


Investor, Behavior, Rationality, Psychological, Heuristics, Biases, Decision-Anchor, Representativeness, Mental Accounting, Herding

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