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Behavioural Biases in Financial Investments: A Comprehensive Literature Review

Author

Listed:
  • Sadhna Bagchi

    (AAFT University of Media and Arts, Raipur, Chhattisgarh)

  • Lalit Prasad

    (Management Studies, Pune, Maharashtra)

  • Mukesh Shrivastava

    (Wells Fargo International Solutions Pvt Limited, Hyderabad, Telangana)

Abstract

This study uses a systematic assessment of 1980-2024 literature to examine how behavioural biases affect financial investment decisions. Psychology and emotion influence investor behaviour in behavioural finance, challenging rational decision-making. The study analyses 40 scientific papers from Google Scholar and PubMed using a systematic literature review (SLR) technique and predetermined keywords and inclusion criteria. Cognitive biases like overconfidence and conservatism and emotional biases like loss aversion and regret aversion strongly influence investment decisions. The study also investigates how post-COVID-19 economic trends and generational behaviours, notably among Millennials and Generation Z, have changed investment tactics. Anchoring, mental accounting, herding, and confirmation biases affect market results and individual decision-making. Financial literacy, planning, and technology moderate these biases, according to this review. The study suggests that behavioural psychology is crucial to designing better investment strategies and provides a roadmap for future research on biases and financial decision-making.

Suggested Citation

  • Sadhna Bagchi & Lalit Prasad & Mukesh Shrivastava, 2024. "Behavioural Biases in Financial Investments: A Comprehensive Literature Review," Acta Universitatis Bohemiae Meridionalis, University of South Bohemia in Ceske Budejovice, Faculty of Economics, vol. 27(3), pages 81-93.
    • Handle: RePEc:boh:actaub:v:27:y:2024:i:3:p:81-93
    DOI: 10.32725/acta.2024.014
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    References listed on IDEAS

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    1. Terrance Odean., 1996. "Volume, Volatility, Price and Profit When All Trader Are Above Average," Research Program in Finance Working Papers RPF-266, University of California at Berkeley.
    2. Alex Edmans & Vivian W. Fang & Allen H. Huang, 2022. "The Long‐Term Consequences of Short‐Term Incentives," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 60(3), pages 1007-1046, June.
    3. Alwathainani, Abdulaziz M., 2012. "Consistent winners and losers," International Review of Economics & Finance, Elsevier, vol. 21(1), pages 210-220.
    4. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    5. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
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    7. Gervais, Simon & Odean, Terrance, 2001. "Learning to be Overconfident," The Review of Financial Studies, Society for Financial Studies, vol. 14(1), pages 1-27.
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    Keywords

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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