Behavioural Finance and Investment Decisions: Understanding the Human Side of Markets

Abstract

Traditional financial models typically presume that investors act rationally and that markets function efficiently. However, actual investment behaviour often strays from these principles due to psychological, emotional, and behavioural factors. This research investigates how significant behavioural biases—such as overconfidence, herding, loss aversion, anchoring, and mental accounting—impact investment choices by considering the mediating effect of risk perception and the moderating effect of financial literacy. Grounded in the findings from behavioural finance literature, the research employs a quantitative methodology utilising survey data gathered from faculty members at autonomous engineering colleges in Hyderabad City. Statistical methods, including correlation and multiple regression analysis, are used to examine the relationships among the variables. The anticipated results aim to enhance the understanding of the psychological aspects of financial decision-making and provide practical insights for investor education, financial advisory services, and policy development geared towards fostering rational and stable investment practices.