Exploring the Impact of Behavioral Biases and Demographic Factors on Investment Decision-Making: Evidence from Indian Retail Investors

The financial landscape has undergone a seismic shift from traditional floor trading to the digitized realm of screen-based transactions. Despite the foundational assumption in finance literature that investors act rationally, empirical evidence reveals the pervasive influence of behavioral biases on investment decisions. This study focuses on discerning and ranking these biases impacting individual stock investors in India. Among the identified biases, overconfidence, disposition effect, herding bias, and representativeness bias emerge as prominent factors shaping investment choices. Notably, a positive correlation exists between overconfidence and decision-making in investments. The study employed primary data collection through a pilot survey, utilizing random snowball sampling to gather insights. Analytical techniques such as regression analysis and structural equation modeling were leveraged to assess the impact of these biases on Indian investors and explore the influence of socio-demographic factors. Results underscore the prevalence of biases in investment decisions, with variables like age, gender, occupation, annual income, and trading experience exerting significant influence. Moreover, the study underscores the importance of recognizing and addressing these biases to foster more informed and rational investment behavior. By understanding the interplay of socio-demographic factors, investors can tailor their strategies to navigate the market effectively. This research contributes to the theoretical understanding of behavioral finance and offers actionable insights for individuals navigating the complexities of the stock market.