Journal Press India®

Impact of Behavioural Biases on Investment Decision Making: A Review Study

Vol 9 , Issue 1 , January - June 2022 | Pages: 125-140 | Review paper  

Article has been added to the cart.View Cart (0)

Author Details ( * ) denotes Corresponding author

1. Avinash Singh, Research Scholar, Institute of Business Management, GLA University, Mathura, Mathura, Uttar Pradesh, India (
2. * Ankit Saxena, Associate Professor, Institute of Business Management, GLA University, Mathura, Agra, Uttar Pradesh, India (

Behavioural finance believes that at times, investors may distort from rationality which affects their decision making. This paper attempts to examine the major behavioural biases so that it can provide us with information related to human psychology, explaining the errors committed by investors while making market-related predictions. It explores the impact of behavioural finance on investment decision-making and compiles related concepts from financial economics, psychology, and sociology concerning building up an extra detailed model of human behaviour in the financial markets. The study also highlights major biases and their implications for the investment decision-making of retail investors.


Behavioural Finance, Investment Psychology, Self-Attribution Bias, Familiarity Bias, Loss Aversion, Representative Bias

  1. Abdellaoui, M., Bleichrodt, H., & Paraschiv, C. (2007). Loss aversion under prospect theory: A parameter-free measurement. Management Science, 53(10), 1659-1674.
  2. Adame, B. J. (2016). Training in the mitigation of anchoring bias: A test of the consider-the-opposite strategy. Learning and Motivation, 53, 36-48.
  3. Ahmed, N., Ahmad, Z., & Khan, S. K. (2011). Behavioural Finance: Shaping the Decisions of Small Investors of Lahore Stock Exchange. Interdisciplinary. Journal of Research in Business, 1(2), 38-43.
  4. Alrabadi, D. W. H., Al-Abdallah, S. Y., & Aljarayesh, N. I. A. (2018). Behavioural biases and investment performance: Does gender matter? Evidence from Amman Stock Exchange. Jordan Journal of Economic Sciences, 5(1), 77-92.
  5. Alti, A., Kaniel, R., & Yoeli, U. (2012). Why do institutional investors chase return trends? Journal of Financial Intermediation, 21(4), 694-721.
  6. Anwar, M., Khan, S. Z., & Rehman, A. U. (2017). Financial Literacy, Behavioural Biases and Investor’s Portfolio Diversification: Empirical Study of an Emerging Stock Market. Journal of Finance and Economics Research, 2(2), 144-163.
  7. Asab, M. Z., Campus, A., Manzoor, S., & Naz, H. (2014). Impact of behavioural finance & traditional finance on financial decision making process. Journal of Economics and Sustainable Development, 5(18), 89-95.
  8. Bailey, W., Kumar, A., & Ng, D. (2011). Behavioural biases of mutual fund investors. Journal of Financial Economics, 102(1), 1-27.
  9. Baker, H. K., & Ricciardi, V. (2014). How biases affect investor behaviour. The European Financial Review, 7-10. Retrieved from
  10. Barberis, N., & Thaler, R. (2003). A survey of behavioural finance. Handbook of the Economics of Finance, 1(1), 1053-1128.
  11. Bar-Haim, Y., Lamy, D., & Glickman, S. (2005). Attentional bias in anxiety: A behavioural and ERP study. Brain and Cognition, 59(1), 11-22.
  12. Berk, J. B., & Green, R. C. (2004). Mutual fund flows and performance in rational markets. Journal of Political Economy, 112(6), 1269-1295.
  13. Blackwood, N. J., Bentall, R. P., Simmons, A., Murray, R. M., & Howard, R. J. (2003). Self-responsibility and the self-serving bias: an fMRI investigation of causal attributions. Neuro Image, 20(2), 1076-1085.
  14. Bradley, G. W. (1978). Self-serving biases in the attribution process: A reexamination of the fact or fiction question. Journal of Personality and Social Psychology, 36(1), 56.
  15. Chabot, B., Ghysels, E., & Jagannathan, R. (2014). Momentum trading, return chasing, and predictable crashes (No. w20660). National Bureau of Economic Research. Retrieved from
  16. Chan, W. S., Frankel, R., & Kothari, S. P. (2003). Testing behavioural finance theories using trends and sequences in financial performance. Sloan School of Management Massachusetts Institute of Technology, 14, 12-29. Retrieved from
  17. Chew, S. H., Ebstein, R. P., & Zhong, S. (2012). Ambiguity aversion and familiarity bias: Evidence from behavioural and gene association studies. Journal of Risk and Uncertainty, 44(1), 1-18.
  18. De Long, J. B., Shleifer, A., Summers, L. H., & Waldmann, R. J. (1990). Positive feedback investment strategies and destabilizing rational speculation. The Journal of Finance, 45(2), 379-395.
  19. Epley, N., & Gilovich, T. (2006). The anchoring-and-adjustment heuristic: Why the adjustments are insufficient. Psychological Science, 17(4), 311-318.
  20. Fama, E. F. (1998). Market efficiency, long-term returns, and behavioural finance. Journal of financial economics, 49(3), 283-306.
  21. Foad, H. (2010). Familiarity bias. In H. Kent Backer and John R. Nofsinger, (eds.), Behavioural Finance: Investors, Corporations, and Markets, (pp. 277-294).
  22. Foellmi, R., Jaeggi, A., & Rosenblatt-Wisch, R. (2019). Loss aversion at the aggregate level across countries and its relation to economic fundamentals. Journal of Macroeconomics, 61, 103136.
  23. Fogel, S. O. C., & Berry, T. (2006). The disposition effect and individual investor decisions: the roles of regret and counterfactual alternatives. The Journal of Behavioural Finance, 7(2), 107-116.
  24. Hanna, S. D., Waller, W., & Finke, M. S. (2011). The concept of risk tolerance in personal financial planning. Journal of Personal Finance, 7(1), 96-108.
  25. Hoffmann, A. O., & Post, T. (2014). Self-attribution bias in consumer financial decision-making: How investment returns affect individuals’ belief in skill. Journal of Behavioural and Experimental Economics, 52, 23-28.
  26. Jahanzeb, A. (2012). The implication of behavioural finance in the investment decision-making process. Information Management and Business Review, 4(10), 532-536.
  27. Jurevičienė, D., & Ivanova, O. (2013). Behavioural finance: theory and survey/Finansinė else: teorija or trims. Mokslas–Lietuvos arteritis/ScienceFuture of Lithuania, 5(1), 53-58.
  28. Kai, G., Chen, J., & Lei, N. (2018). The Escalation of Commitment and Disposition Effect in Securities Trading: An Experimental Study. International Journal of Business and Economics Research, 7(1), 1-6.
  29. Lichtenstein, S., & Slovic, P. (1971). Reversals of preference between bids and choices in gambling decisions. Journal of Experimental Psychology, 89(1), 46-55.
  30. Lieder, F., Griffiths, T. L., Huys, Q. J., & Goodman, N. D. (2018). The anchoring bias reflects the rational use of cognitive resources. Psychonomic Bulletin & Review, 25(1), 322-349.
  31. Liu, K., Lai, K. K., & Yen, J. (2010). A theoretical model of stock trading behaviour with biases. In K Liu, K K Lai & J Yen,(Eds.), Proceedings of the World Congress on Engineering (Vol. 1).
  32. Mahina, J. N., Willy, M., & Florence, M. (2018). Effect of self-attribution bias on investment in the Rwandan stock market. Global Journal of Management and Business Research 18(2), 54.
  33. Marais, J. E. (2007). The role of behavioural finance in successful financial services SMEs (Doctoral dissertation, North-West University, Potchefstroom Campus). Retrieved from ed =y&sequence=1.
  34. Massa, M., & Simonov, A. (2005). Behavioural biases and investment. Review of Finance, 9(4), 483-507.
  35. Mishra, K. C., & Metilda, M. J. (2015). A study on the impact of investment experience, gender, and level of education on overconfidence and self-attribution bias. IIMB Management Review, 27(4), 228-239.
  36. Mussweiler, T., Englich, B., & Strack, F. (2004). 10 Anchoring effect. Cognitive illusions: A handbook on fallacies and biases in thinking, judgment and memory, 183-200.
  37. Onsomu, Z. N. (2014). The impact of behavioural biases on investor decisions in Kenya: Male Vs Female. Impact Journals, 2(6), 87-92.
  38. Pan, C. H., & Statman, M. (2012). Questionnaires of risk tolerance, regret, overconfidence, and other investor propensities. Journal of Investment Consulting, 13(1), 54-63.
  39. Pompian, M. (2016). Risk profiling through a behavioural finance lens. CFA Institute Research Foundation, 2(1), 1-18.
  40. Rau, H. A. (2015). The disposition effect in team investment decisions: Experimental evidence. Journal of Banking & Finance, 61, 272-282. Retrieved from
  41. Raut, R. K. (2020). Past behaviour, financial literacy and investment decision-making process of individual investors. International Journal of Emerging Markets, 15(6), 1243-1263.
  42. Razek, Y. H. A. (2011). An overview of behavioural finance and revisiting the behavioural life-cycle hypothesis. IUP Journal of Behavioural Finance, 8(3), 7-24.
  43. Ricciardi, V., & Simon, H. K. (2000). What is behavioural finance?. Business, Education & Technology Journal, 2(2), 1-9.
  44. Ritter, J. R. (2003). Behavioural finance. Pacific-Basin Finance Journal, 11(4), 429-437.
  45. Roszkowski, M. J., & Grable, J. E. (2005). Estimating risk tolerance: The degree of accuracy and the paramorphic representations of the estimate. Journal of Financial Counseling and Planning, 16(2).
  46. Schleich, J., Gassmann, X., Meissner, T., & Faure, C. (2019). A large-scale test of the effects of time discounting, risk aversion, loss aversion, and present bias on household adoption of energy-efficient technologies. Energy Economics, 80, 377-393. Retrieved from
  47. Seiler, M., Seiler, V., Traub, S., & Harrison, D. (2008). Familiarity bias and the status quo alternative. Journal of Housing Research, 17(2), 139-154.
  48. Shefrin, H. (2007). How the disposition effect and momentum impact investment professionals. Journal of Investment Consulting, 8(2), 68-79.
  49. Singh, R. (2010). Behavioural finance studies: emergence and developments. Journal of Contemporary Management Research, 4(2), 1-9.
  50. Slovic, P. (1972). A psychological study of human judgment: Implications for investment decision making. The Journal of Finance, 27(4), 779-799.
  51. Spindler, G. (2011). Behavioural finance and investor protection regulations. Journal of Consumer Policy, 34(3), 315.
  52. Statman, M. (1999). Behavioural finance: Past battles and future engagements. Financial Analysts Journal, 55(6), 18-27.
  53. Tobon, J. I., Ouimet, A. J., & Dozois, D. J. (2011). Attentional bias in anxiety disorders following cognitive-behavioural treatment. Journal of Cognitive Psychotherapy, 25(2), 114-129.
  54. Virine, L., Trumper, M., & Virine, E. (2018). Heuristics and biases in project management. PM World Journal, VII(I), 1-11.
  55. Wood, A. S. (2010). Behavioural finance and investment management. Brussels Belgium: The CFA Institute Research Foundation.
  56. Yuen, R. W. P. (2012). Importance of behavioural finance. Retrieved from 10.2139/ssrn.2056980.
  57. Zaleskiewicz, T. (2006). Behavioural finance. Handbook of Contemporary Behavioural Economics, New York: Sharpe.
  58. ZarBabal, K. (2014). Trend-chasing and home price dynamics: Evidence from a novel index measure of housing sentiment. DOI: 10.2139/ssrn.2274343.
  59. Zindel, M. L., Zindel, T., & Quirino, M. G. (2014). Cognitive bias and its implications on the financial market. International Journal of Engineering and Technology, 14(3), 11-17.
Abstract Views: 20
PDF Views: 33

Advanced Search


Indira School of Bus...

Indira School of Mangement Studies PGDM, Pune Organizing Internatio...

Indira Institute of ...

Indira Institute of Management, Pune Organizing International Confe...

D. Y. Patil Internat...

D. Y. Patil International University, Akurdi-Pune Organizing Nation...

ISBM College of Engi...

ISBM College of Engineering, Pune Organizing International Conferen...

Periyar Maniammai In...

Department of Commerce Periyar Maniammai Institute of Science &...

Institute of Managem...

Vivekanand Education Society's Institute of Management Studies ...

Institute of Managem...

Deccan Education Society Institute of Management Development and Re...

S.B. Patil Institute...

Pimpri Chinchwad Education Trust's S.B. Patil Institute of Mana...

D. Y. Patil IMCAM, A...

D. Y. Patil Institute of Master of Computer Applications & Managem...

Vignana Jyothi Insti...

Vignana Jyothi Institute of Management International Conference on ...

By continuing to use this website, you consent to the use of cookies in accordance with our Cookie Policy.