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Behavioural Finance and Investment Decision-Making in the Indian Stock Market

Shivani Guru, Assistant Professor, Amity University Raipur (C.G.)

Anthony Arlain, Enrollment number A80304622048 , B.com honers section B, Batch 2022- 2025, , Amity University Raipur (C.G.)

Abstract

Behavioral finance has emerged as a significant field of study that challenges the traditional assumptions of rationality in financial decision-making. In contrast to classical theories which presume investors are fully rational and always seek to maximize utility, behavioral finance explores how psychological biases, emotions, and cognitive errors influence investment choices. This study investigates the impact of behavioral finance factors on investment decision-making in the context of the Indian stock market—a market characterized by growing participation from retail investors, high volatility, and increasing digital access.

The research focuses on key behavioral biases such as overconfidence, herd behavior, loss aversion, anchoring, and mental accounting, and examines how these biases shape the decision-making process of Indian investors. A mixed-method approach is adopted, combining survey data from individual investors with statistical analysis to understand the extent and influence of these biases. Findings indicate that despite access to financial information and analytical tools, investor decisions are often influenced by irrational and emotional factors, leading to suboptimal investment outcomes.

The study highlights that demographic factors such as age, income level, and investment experience also play a role in susceptibility to behavioral biases. Understanding these tendencies is crucial for financial advisors, policymakers, and investors themselves, as it can lead to more informed strategies and improved financial literacy. The paper concludes by recommending behavioral interventions and investor education programs aimed at minimizing the adverse effects of cognitive biases in the Indian stock market.