IMPACT OF BEHAVIORAL BIASES AND INVESTMENT DECISION MAKING

Abstract

The study focuses on five major behavioral biases: overconfidence (thinking you know more than you do), loss aversion (hating losses more than loving gains, which leads to selling winners too soon and holding losers too long), anchoring (fixating on initial information like a stock’s purchase price), herd mentality (following the crowd), and confirmation bias (only paying attention to news that backs your beliefs). These biases, grounded in ideas like Kahneman and Tversky’s Prospect Theory, explain why investors might act impulsively, overtrade, or get swept up in market frenzies, causing bubbles or crashes that traditional theories struggle to predict.

To understand these effects, the study surveyed 70 retail investors in Delhi NCR using an online questionnaire. The group was varied: half men, half women (41.43% each), mostly aged 25–34 (30.36%), and often earning less than ₹3,00,000 a year (38.57%). Many had 1 3 years of investing experience (30%). Using tools like Excel and SPSS, the study analyzed data with stats like frequency counts, Chi-square tests, ANOVA, and regression to see if things like gender, age, or experience shaped risk-taking, crowd-following, or confidence in familiar investments.

The results did not show statistically significant relationships between gender and risk preferences (p = 0.409), experience and following the crowd (p = 0.400), or age/experience and confidence in known investments (p = 0.577 and 0.509). Even how skilled people thought they were did not significantly predict their confidence (p = 0.966). However, certain patterns were observed: 43% preferred a balanced approach to risk, 37% were very likely to follow market trends, and 40% leaned heavily on media for guidance, hinting that biases play a big role. The findings suggest that behavioral biases can influence investors, their impact might depend on specific situations, like market conditions or cultural factors, which need more study. To support better investment decision-making, the study suggests running workshops to teach about biases, offering tailored advice from financial planners, creating apps that nudge people away from impulsive moves, and having regulators like SEBI add warnings about crowd-driven risks. These steps could empower Delhi NCR investors to build stronger financial futures and help keep India’s markets steady.