Effect of Behavioural Biases on Investment Decisions of Individual Investors: An Empirical Study

Abstract

The study aims to explore the influence of behavioural biases on investors' investment decisions in Indian states like Chhattisgarh and Odisha. Structural Equation Modelling (SEM) is used as a tool in this study to evaluate the impact of various behavioural biases like'optimism','overconfidence','disposition','herding', and'anchoring'on the decisions of individual investors. Data of individual investors is obtained through a structured questionnaire based on survey-based research design. A total of 200 sample data is considered for the study after due scrutiny. The result revealed that optimism, herding, and anchoring biases positively influence investors' investment decisions, with beta values of 0.37, 0.05, and 0.73 respectively. However, it is found that'overconfidence'and'disposition'biases have negative effects on investors' investment decisions. The findings of this study will enable investors to make more rational and informed investment decisions by recognizing, anticipating, and mitigating the influence of behavioural biases and their consequential effects on investment outcomes. It will also be helpful to the policymakers to identify the anomalies in the financial market and will develop the appropriate strategies to overcome/eliminate their adverse effects.