2024, Vol. 7, Issue 2

Although conventional finance theories typically assume that investors behave rationally, this study demonstrates how cognitive biases and psychological factors lead to systematic deviations from rational conduct. The impact of significant biases on investment choices and market outcomes, such as loss aversion, anchoring, and overconfidence, is examined. The essay also discusses the emotional elements that influence investor conduct, such as regret aversion and herd mentality, which may result in market oddities like bubbles and crashes. Finally, the concept of mental accounting is explored in order to understand how investors organize funds, which typically results in poor judgments.

The study highlights the value of investor education and the function of financial counselors in encouraging logical decision-making while acknowledging these biases and offering solutions to lessen their influence. The results imply that a better grasp of behavioral finance might enhance investment tactics and increase market efficiency in general. It is advised that further study be done on how social media and technology affect investment behavior.