How Cognitive Biases And Behaviors Influence Investors
- Questioz Editor
- Dec 21, 2024
- 1 min read
Keshav Mittal
ABSTRACT
Human beings often undertake decisions that drive them to suboptimal results. Behavioral finance, a subfield within finance, provides an answer by contradicting the traditional assumption of rationality in financial decision-making undertaken by individual investors. It highlights the influence of cognitive and emotional biases that drive an investor into making irrational decisions, thereby earning sub-optimal results. This research essay uses the systematic review of financial literature to explore prominent behavioral biases such as overconfidence, herding, disposition, and anchoring bias and their mutual impact on investment decisions and overall market dynamics. Deriving from theoretical frameworks and studies, the essay delves into a comprehensive study of mechanisms through which these biases influence rational thinking, leading to decisions that ultimately yield underperforming outcomes and highlighting their wider impact on the financial landscape of a nation and its institutions.
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