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Behavioural Biases - Impact on Individual Investment Decisions


M. Sangeetha, D. Sreeramulu


In the world of finance, investment is one of the most important long term decisions made. An investment decision is optimal when the value of balancing financial risk and return is aptly understood. Investors are considered to be rational in their investment decision-making. It is believed that investors follow the basic concept of traditional finance and the said decision will be taken based on the intrinsic value of the securities. But it has been observed that many of the behavioural (psychological) factors adversely affect the investment decision of the investors.
The decision-making process is a cognitive process which results in selection of a course of action among several alternatives. Most of the investors in the financial market do not have enough knowledge about the investments and economy of that particular nation. But there are decisions based on emotions, feelings, fantasy and sentiments. The influence of the psychological factors in determining the selection of portfolio gave rise to a new perspective in finance known as “behavioural finance”. It attempts to explain the understanding of reasoning patterns of the investors, including the emotional processes involved and the degree to which they influence the decision-making process.
Investors exhibit irrational behaviour in their decision-making. The decision-making process itself is considered to be a cognitive process as the investors have to make a decision based on various alternatives available to them. The researchers have found that the investors’ decision-making was adversely affected by the various psychological/behavioural factors.




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Behavioural Biases - Impact on Individual Investment Decisions. M. Sangeetha, D. Sreeramulu. 2023. IJIRCT, Volume 9, Issue 3. Pages 1-10.

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