COGNITIVE BIAS FACTORS INFLUENCING INVESTORS INVESTMENT DECISIONS IN BEHAVIOURAL FINANCE PERCEPTION

Abstract

Purpose: This article reviews research articles on behavioural finance with the goal of analysing and describing the conduct of investors and how cognitive bias factors influence investors' decision-making and their effect on investments in financial markets. Some of the analytical and foundational work done over the years to establish behavioural finance as a respected and independent field of study is also discussed. Investor investment behaviour and investor investment patterns in the financial market are the subjects of this investigation.

Design/ Methodology/Approach: Using a descriptive research methodology, data on cognitive bias behavioural factors were gathered from 109 of 130 survey respondents. The survey used a form of stratified sampling. All variables, both nominal and on the Likert scale, were calculated using the quantitative aspect of the instrument. Journal articles, conference proceedings, working papers, and books were searched for behavioural finance-related keywords. The collection covered several decades, from beginning pieces to the most recent works (2023). The table details the various sources the writers consulted in order to compile their data. Investors investment decisions are analysed in terms of the extent of influence of cognitive bias elements using reliability test analysis, correlation analysis, and linear regression analysis.

Findings - Our research shows that only three of the five independent variables examined significantly impact investor behaviour, including confirmation bias, loss aversion, and the illusion of control. The research confirms the existence of the five cognitive behavioural biases that affect investors' decision-making in the financial markets. The results will aid financial advisors in providing personalised guidance to their clients.

Research implications - The existing procedure for making investment decisions has been proven to benefit from a deeper familiarity with the behavioural biases of individual investors. Cognitive biases, which might prevent investors from fully utilising their rationality while making investment decisions, are one topic of study in the field of behavioural finance, which investigates the irrational aspects of human investment behaviour.

Originality/value - Despite the fact that numerous studies have shown that investors are susceptible to cognitive and behavioural biases when making financial decisions, some groups of investors have reaped the benefits of these biases more than others, while still others have yet to see any return on their investment. The article suggests that cognitive behavioural biases are significant contributors to their investment decisions.       

Keywords: Behavioural Finance, Cognitive Psychology, Cognitive Bias, Individual Investors, and Investment Decisions.