Irrationality in Action: An Empirical Analysis of How Behavioral Biases Shape Investment

Abstract

My thesis examines the effect of behavioral biases on investment decision-making and focuses on main important biases: overconfidence, herd behavior, and loss aversion. My work, through the use of case studies and quantitative analysis, reflects that these are psychological factors influencing the investor's decision-making process. The research embodies data from primary surveys, studying how demographic factors further shape susceptibility to these biases. This study also emphasizes that financial literacy or awareness about cognitive biases is very crucial for making rational investment decisions. This paper also contributes to the literature of behavioral finance through providing certain useful insights to novice and professional investors about how to reduce the impact of psychological biases.