Behavioral Bias in Investment Decision Making: A Behavioral Finance Perspective

Abstract

This study discusses the role of behavioral bias in individual investment decision making from a behavioral finance perspective. Traditional finance theory assumes that investors behave rationally when making investment decisions. However, in reality, investors are often influenced by psychological and emotional factors that lead to irrational behavior. Various behavioral biases such as overconfidence bias, herd behavior, loss aversion, anchoring bias, and confirmation bias can affect how investors process information and make investment decisions. This study uses a literature review approach by analyzing previous studies related to behavioral finance and investor behavior. The findings show that behavioral biases significantly influence investor decisions. Understanding behavioral bias is important for helping investors make wiser and more rational investment decisions. This study contributes to the behavioral finance literature by providing a conceptual understanding of the psychological factors underlying investor behavior.