Psychological Architecture of Investment Irrationality: Behavioural Determinants of Equity Investment Decision-Making Among Retail Investors in India

This study investigates the behavioural determinants of equity investment decision-making among individual retail investors in India, examining the prevalence, intensity, and demographic moderation of seven core cognitive and emotional biases. Grounded in Prospect Theory (Kahneman & Tversky, 1979), the Heuristics and Biases Programme (Tversky & Kahneman, 1974), and Noise Trader Theory with Limits to Arbitrage (De Long et al., 1990), the research analyses data from 101 active retail equity investors using a validated 19-item Likert-scale instrument (Cronbach's α = 0.933). Employing a multi-method analytical framework encompassing one-sample t-tests, chi-square tests, one-way ANOVA, Pearson correlation analysis, and Principal Component Analysis (PCA) with Varimax rotation, the study establishes that all seven biases overconfidence, herding, FOMO-driven impulsivity, disposition effect, loss aversion, mood-driven bias, and fear-of-loss are statistically significant at p < 0.001. Loss aversion [t(100) = 5.449] and the disposition effect [t(100) = 5.164] emerge as the dominant psychological drivers. PCA reveals a three-component behavioural architecture explaining 61.38% of total variance. Demographic analysis confirms age, gender, educational qualification, income, and investment experience each significantly moderate bias expression. The study contributes an integrated cluster-based behavioural framework for India's rapidly growing retail equity investor base, offering actionable insights for financial advisors, investment platform designers, financial educators, and regulators.