An Integrative Perspective on Behavioral Biases, Investors’ Behavior and Investment Decision

Abstract

Behavioral finance is an emerging approach that challenges the traditional view of investors’ rational decision-making ability. Behavioral biases are the core idea of behavioral finance, which constitutes emotional and cognitive biases that distort investors’ rational judgment and lead them to suboptimal outcomes. The present study offers an integrative perspective of behavioral biases, investors’ behavior, and investment decisions by demonstrating the presence of behavioral biases in investors’ behavior and their influence on investment decisions. By adopting a qualitative approach, this study investigates the presence psychological factors in investors’ behavior and explores various biases. Additionally, the study investigates behavioral biases in relation to prospect theory and market anomalies, and analyzes their influence on decision-making. Further, it suggests mitigating strategies of behavioral biases, such as adhering to predetermined financial plans, diversification techniques, and getting professional assistance for improving financial decision-making. Overall, the present study offers a conceptual and theoretical understanding of investors’ behavior by comprehending behavioral biases and their influence on investment decisions. Based on the findings, policymakers and regulatory bodies can formulate policies to safeguard investors' interests, and financial advisors can design portfolios considering investors’ behavioral tendencies.