Behavioral Aspects Of Retail Investors To Accurately Understand Their Decision-Making Process

Investor decision-making has traditionally been explained through rational models rooted in classical finance theory. However, increasing empirical evidence suggests that psychological biases significantly influence retail investors' behavior. This study investigates the behavioral aspects influencing retail investors to better understand their decision-making process. Specifically, it examines the impact of overconfidence bias, herding behavior, loss aversion, anchoring bias, and availability bias on investment decisions. A structured questionnaire was administered to 250 retail investors, and data were analyzed using SPSS (Version 26). Reliability analysis, correlation analysis, multiple regression, and exploratory factor analysis (EFA) were conducted to test the proposed hypotheses. The results indicate that overconfidence and herding behavior significantly and positively affect investment decision-making, while loss aversion negatively influences risk-taking behavior. Anchoring and availability bias also demonstrate statistically significant effects on investment choices. The model explains 62% of the variance in retail investment decisions (R² = 0.62). These findings confirm that retail investors are not entirely rational and that psychological factors play a crucial role in financial decision-making. The study contributes to behavioral finance literature by offering empirical insights into cognitive and emotional biases affecting retail investors and provides implications for financial advisors, policymakers, and investment educators. Understanding these behavioral dimensions can improve investor awareness, portfolio strategies, and financial market efficiency.