J. Sahaya Shabu |
Xavier Institute of Business Administration, Palayamkottai, Tamil Nadu, India.
Abstract
Behavioral biases exert a profound influence on investment decision-making, shaping the judgments and actions of investors in financial markets. Despite the prevailing assumption of rationality, human psychology plays a significant role in guiding investment behaviors, leading to systematic patterns of deviation from normative decision-making processes. In this paper, we explore the intricacies of behavioral biases in investment decision-making through a strategic lens. We examine the cognitive, emotional, and social biases that impact investment performance, including overconfidence, loss aversion, herding behavior, and confirmation bias. Through a comprehensive analysis, we elucidate the detrimental effects of these biases on investment outcomes, including suboptimal asset allocation, excessive trading, emotional decision-making, and underperformance during market volatility. Furthermore, we propose strategies for mitigating the influence of behavioral biases, including awareness and education, systematic investment processes, diversification, seeking independent advice, utilizing technology, and maintaining a long-term perspective. By understanding and addressing these biases, investors can enhance their decision-making processes, optimize investment performance, and navigate financial markets more effectively.
Keywords: Behavioral Biases, Investment Decision-Making, Cognitive Biases, Emotional Biases, Mitigation Strategies
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