The Impact of Behavioural Biases on Individual Investors’ Decision- Making: An Analysis of Cognitive and Emotional Biases in Investment Choices

Abstract

The purpose of this study is to investigate the role that behavioural biases play in the investment decisions made by individual investors. In particular, the purpose of this study is to investigate the cognitive and emotional biases that may affect the investment choices made by individual investors. The goal of the study is to understand how certain cognitive biases might affect the decision-making process of investors and to give insights that can aid investors in making better-informed judgements. The research question that will be investigated in this study are as follows: What are the cognitive and emotional biases that affect individual investors ́ decision-making, and how do these biases impact their investment decisions? A comprehensive literature review was conducted to introduce and identify the various cognitive and emotional biases that can influence the decision-making of individual investors. The study section investigates the behavioural biases that may be associated with different investment strategies, such as dividend investing, growth investing, and value investing. Using Google Trends data, the author analyses the search volumes for these keywords globally and in specific regions, such as Russia and Vietnam. The search volumes and the reasons behind them suggest that behavioural biases may be at play. Overall, the study emphasizes the relevance of detecting and controlling behavioural biases to make better financial decisions through education and awareness raising of the issue. This can potentially improve investment decision-making and portfolio performance.