Examining the Impact of Cognitive Biases on Investment Decision Making of Individual Investros in India: An Integrated Sem-Ann Method

Abstract

Aim- The aim of the study is to examine the impact of cognitive biases (Overconfidence, Representativeness, Availability, Confirmation and Anchoring) on investment decision making.

Methodology– Using multi-stage stratified random sampling, data are collected from 402 Indian retail investors-representing most Indian states and union territories (UTs). The study utilized the PLS-SEM technique in conjunction with artificial neural network (ANN) research to examine the proposed hypothesis, verify the stability of the results, and extract significant practical knowledge.

Findings – The findings of the research indicates that Overconfidence (OC), Representativeness (RB), Availability (AVB), Confirmation (CB) and Anchoring (ANB) biases have a significant positive relation with investment decision making (IDM). And According to the results of the ANN sensitivity analysis, anchoring bias (ANB) emerged as the primary influencer of investment decision making, followed by Confirmation (CB), Availability (AVB), Overconfidence (OC), and Representativeness (RB) bias, in descending order of significance.

Research implications – Based on this present research finding, the study is more productive for retail investors at the time of making an investment decisions. The study offers insights for financial advisors regarding cognitive biases' impact on investors' choices, enriching financial literature and aiding future research in behavioral finance. It serves as a foundation for scholars, guiding deeper understanding of stock market behavior and behavioral finance's applicability.

Originality/Value- This pioneering study explores the link between cognitive bias and individual investors' decision-making, contributing to a deeper understanding of behavioral influences in investment management, especially in emerging markets. It also expands the literature on behavioral finance, particularly regarding cognitive bias in investment strategies, an area still nascent even in developed economies, and largely unexplored in developing nations.