This study aims to analyze the effect of behavioral biases, which include overconfidence, loss aversion, and herding bias, on the stock investment decisions of individual investors on the Indonesia Stock Exchange. Paralleled with the backdrop of modern economic theory which states that investors do not always act rationally in identifying market trends, this study recognizes that psychological and cognitive biases can lead to risk and information asymmetry in investment decision making. To test these influences, this study uses quantitative methods with a causal associative approach, based on primary data collected through structured questionnaires and analyzed using structural equation modeling (SEM). The results showed a significant mediating effect of risk perception in the relationship between overconfidence and loss aversion on investment decisions. Furthermore, overconfidence, loss aversion, and risk perception were shown to have a direct impact on investment decisions, while herding bias showed no significant effect. Additionally, the novelty of this study lies in testing a new hypothesis: investors are directly influenced by their inherent behavioral patterns, and these influences are further reinforced by how investors perceive associated risks. By measuring and managing the risks that may arise during the investment process, investors can make more informed decisions.
Pratiwi et al. (2025) studied this question.