Behavioral Biases and Investment Decision Making among Retail Investors

Abstract

Behavioral finance highlights that investors are not always rational, as psychological biases often influence their decisions. This study investigates the effect of behavioral biases on investment decision making among retail investors. The research aims to identify dominant behavioral biases and assess their influence on investment choices. Using a quantitative survey method, data were collected from individual retail investors and analyzed using structural equation modeling. The findings reveal that overconfidence, herd behavior, and loss aversion significantly affect investment decisions, often leading to suboptimal portfolio choices. Investors tend to rely on emotions and social influence rather than objective financial information. The study concludes that behavioral biases play a crucial role in shaping retail investors’ behavior and may reduce investment performance. This research contributes to behavioral finance literature by offering empirical evidence from retail investors and emphasizes the importance of investor education to mitigate irrational decision making.