Influence of Behavioral Biases on Investment Behavior

The standard investment theory assumes that the investors are all uniform and invest with the same motives. Sentiment among investors can affect the returns of the stocks and the stocks preferred by retail investors are sensitive to even minor changes in investor sentiment. Behavioural Finance provides an alternative explanation for the behaviour that traditional economics fails to address. Not all investors can be expected to react in the same manner to all the biases; some investors may show fewer predispositions towards certain biases. A better understanding of how economic decisions are made will help investors to make more optimal decisions. The research further delves into an investigation of whether the proposed groups of aversion, mental accounting, attitudinal and interpretational biases hold true in reality.