Assessing Investor Understanding of Behavioral Finance and the Effects of Behavioral Biases on Investment Choices

Author(s)	Ms. ch Lakshmi Hyma, Dr. K Naga Sumalatha
Country	India
Abstract	Behavioral finance has emerged as an important field that explains how psychological and emotional factors influence investors’ financial decisions. Traditional financial theories assume that investors are rational and markets are efficient; however, real-world evidence suggests that investors frequently make irrational decisions due to behavioral biases. This study aims to assess investors’ understanding of behavioral finance and examine how behavioral biases influence investment choices. The research analyses common biases such as overconfidence, herding behaviour, loss aversion, and anchoring, and evaluates their impact on portfolio decisions. The study highlights the role of financial literacy and investor awareness in reducing irrational decision-making. The findings suggest that behavioral biases significantly influence investment strategies, often leading to suboptimal financial outcomes.
Keywords	Behavioural Finance, Behavioural Biases, Herding Behaviour, Loss Aversion, Anchoring Bias, Financial Decision-Making, Investment Choices
Published In	Volume 7, Issue 2, March-April 2026
Published On	2026-03-19

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