A Quantitative Look at The Role of Behavioral Biases in Making Investment Decisions

Abstract

Behavioral flaws have a big effect on investment decisions, which is why investors often do not get the best financial results. We are using mathematical methods to look into how emotional and mental biases like anchoring, herding, overconfidence, and loss aversion affect investment choices. The study looks at poll data from individual investors and how they changed their portfolios in response to market trends to find bias patterns that affect how decisions are made. The results show that buyers often make decisions about investments based on their feelings instead of logic and economics. Also, the mood of the market and social factors have a big effect on how people buy, which can make herding and overreaction biases worse. These biases can be lessened in a number of ways, including through behavioral training and automated investment tools. It is important to understand these biases in order to make better investment decisions. as more study is done on behavioral finance, policymakers, financial advisors, and individual investors can use what they have learned to make better, more rational investment decisions.