Impact of Behavioural Biases on Investment Decision-Making: Evidence from Investors

Abstract

The objective of this study is to investigate how behavioural biases affect the decisions that individual investors make when making investments. To address the objective, researchers used a sample of 201 individual investors as the primary data source. The data was collected using an online survey utilising a convenience sampling approach and analysed using Partial Least Squares (Smart-PLS). The study found that Anchoring Bias, Endowment Effect and Loss Aversion substantially impact investors’ decision-making, resulting in the overvaluation of assets and the avoidance of prospective losses. Failure to overcome these biases might result in making less-than-ideal decisions. The Ambiguity Effect does not substantially influence investing choices, indicating that investors give more importance to familiar biases and risks rather than ambiguity. Financial professionals must acknowledge and comprehend these biases to develop tactics that lead to better-informed investment choices and enhanced results. This research lies at the intersection of cognitive biases in behavioural finance with financial decisions made by individual investors, contributing to developing a theoretical framework. The four behavioural biases that are most frequently seen have been included in this research. Therefore, the discoveries may be advantageous to individual investors in enhancing their financial decision-making process by mitigating these biases and fostering a more comprehensive comprehension of them. Subsequent researchers should examine the influence of other biases and investigate their effects on institutional investors.

Keywords: Ambiguity Effect, Anchoring Bias, Endowment Effect, Loss Aversion Bias, Investment Decisions, Individual Investors

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