Traditional finance theories assume that investors behave rationally and make decisions based on complete information. However, empirical evidence indicates that investors are often influenced by behavioural biases that lead to deviations from rational decision-making. To get more insights on this phenomenon, the study investigated the effects of between behavioural biases and investment decisions by synthesising global empirical findings through a systematic and meta-analysis protocol (PRISMA-P). Using a set of inclusion and exclusion criterion, sixty-four studies were identified. The results revealed that in all studies, hindsight bias has a significant positive effect on investment decisions. It implies that investors who increase the perceived predictability of past events are likely to make better investment decisions. On the other hand, the disposition effect and mental accounting bias have shown a significant negative effect on investment decision, implying that the presence of mental accounting and the disposition effect makes investors to make unfavourable decisions. Overconfidence, herding, availability, anchoring, loss aversion, and risk aversion are statistically insignificant, implying limited explanatory power to influence investment decisions. The study further found no publication bias given the insignificant intercept of Egger regression. The Egger regression further demonstrated that hindsight bias has significant positive effect on effect sizes, indicating the presence of systematic moderator effect. Biases such as overconfidence, anchoring, herding, representative, disposition effect, availability, mental accounting, risk aversion, and regret aversion are statistically insignificant, indicating the absence of systematic moderator effect. The study concluded that investor behaviour cannot be fully explained by rational models, behavioural economics models play a pivotal role in explaining investor patterns. The study’s implications extend to policymakers, financial advisors, and investors, emphasising the importance of behavioural awareness and financial education in improving decision making.
TAKARUZA et al. (Tue,) studied this question.