The Impact of Behavioural Finance on Investment Decision-Making: A Study of Selected Investment Banks in India
Abstract
This study examines the impact of behavioural finance on investment decision-making among retail investors associated with selected investment banks in India. Moving beyond traditional rational finance frameworks, the research focuses on two primary psychological dimensions: heuristics and prospect theory. Primary data were gathered through a structured questionnaire from a sample of 184 active investors using a convenience sampling technique. The data were analyzed using Pearson correlation and multiple linear regression analysis. The empirical results demonstrate that both heuristics and prospect theory have a statistically significant negative relationship with effective investment decision-making. Specifically, a heavy reliance on cognitive mental shortcuts and prospect-related illusions (such as loss aversion and anchoring) significantly reduces the overall rationality and quality of investment choices. Comparatively, heuristics exert a substantially stronger negative influence on decision-making performance than prospect theory. The findings suggest that financial institutions and policymakers must design targeted advisor frameworks and behavioral financial education initiatives to minimize systematic biases and enhance market efficiency.