Determinants of Investment Decision-Making: The Role of Behavioural Biases among Retail Investors

Abstract

Traditional finance theory assumes that investors act rationally and process available information efficiently while making investment decisions. However, growing evidence from behavioural finance suggests that investors are frequently influenced by psychological and cognitive factors that lead to systematic deviations from rational decision-making. The present study examines the influence of key behavioural biases — overconfidence, herding, anchoring, loss aversion, and mental accounting — on the investment decision-making of retail investors in the Saurashtra region of Gujarat. A quantitative research design was adopted using a structured questionnaire administered to 300 retail investors actively trading in equity and mutual fund instruments. Descriptive statistics, reliability analysis, Pearson correlation, and multiple regression analysis were employed to test the proposed hypotheses. The findings reveal that overconfidence and herding bias exert the strongest influence on investment decision-making, followed by loss aversion, anchoring, and mental accounting. The regression model explained approximately 36.6 per cent of the variance in investment decision-making, indicating that behavioural biases constitute a substantial, though not exclusive, determinant of retail investment choices. The study contributes to the growing body of regional behavioural finance literature and offers practical insights for financial advisors, investor-education agencies, and policymakers seeking to mitigate the adverse effects of behavioural biases on investment outcomes.