Decoding behavioral biases: Exploring the mediating role of risk perception in shaping investment decisions

This study investigates the direct and indirect relationships among behavioral biases and individual investors' decision criteria, focusing on the mediating role of risk perception. Employing structural equation modeling, data were collected from 438 respondents actively investing in Indian stock markets using a convenience sampling technique. The outcomes reveal that risk perception is a mediating factor involving blue-chip stocks and investment decisions, indicating a reduction in the risk nature of securities in the decision-making process. Conversely, no mediating effect of risk perception was found among herding behavior bias, the disposition effect, and investment decisions. The study also establishes a significant direct relationship between the disposition effect and risk perception. The results highlight that risk remains a critical factor discouraging investment decisions, whereas blue-chip securities serve as an essential mechanism for mitigating this risk. While prior research has extensively explored biases in behavior and their effects on investment decisions, this study uniquely enhances understanding of the mediating role of risk perception. These findings offer valuable implications for regulatory bodies and policymakers seeking to improve investors' decision-making frameworks in evolving markets.