Behavioral Biases and Retail Investment Decisions in India: The Moderating Role of Financial Literacy and Financial Awareness
Abstract
This study investigates how behavioral biases influence the investment decisions of retail investors in Kolkata, India, with particular emphasis on the moderating roles of financial literacy and financial awareness. Despite the rapid expansion of India’s financial markets and increased retail participation, investors often exhibit irrational behavior driven by psychological biases. This study seeks to answer the following research question: To what extent do behavioral biases affect the investment decisions of retail investors in Kolkata, India, and how effectively do financial literacy and financial awareness mitigate these effects? Using primary data collected from 444 retail investors in Kolkata, this study employs Partial Least Squares Structural Equation Modeling (PLS-SEM) to test the conceptual framework. The findings reveal that behavioral biases—namely overconfidence, anchoring, herd behavior, and loss aversion—significantly and negatively affect investment decisions. However, financial literacy and financial awareness not only positively influence decision-making but also significantly moderate the relationship between behavioral biases and investment outcomes. This study contributes to behavioral finance literature by distinguishing between financial literacy and financial awareness as separate constructs and demonstrating their dual role as both direct and moderating factors. The findings have important implications for policymakers, financial educators, and investment advisors in designing targeted interventions to improve investor decision-making.