Mind Over Market: How Behavioural Finance Shape Individual Investment Choices

Abstract

The study "Mind Over Market: How Behavioral Finance Shapes Individual Investment Choices" explores the psychological factors influencing investors' decisions. Unlike traditional financial theories assuming rational decision-making, behavioral finance examines biases such as overconfidence, loss aversion, and herd behavior. These biases often lead individuals to make irrational choices, deviating from optimal financial strategies. By analyzing investor behavior through these lenses, the study highlights the impact of emotions and cognitive errors on market outcomes. The research underscores the importance of understanding these psychological factors to improve investment strategies and promote more rational decision-making in the financial markets. Every human choice is fundamentally influenced by individual perception; hence, psychology significantly impacts all decisions, including those in finance and investment. Behavioral finance is the discipline that examines the influence of psychology on financial decision-making, particularly the cognitive shortcuts and biases individuals possess. In contrast to conventional finance, which is grounded in logic and rationality, behavioral finance takes into account emotions and intuition. In summary, conventional finance pertains to rational thought, while behavioral finance relates to emotional influences.This report examines how people make investing choices. The research examines the origins of judgment and decision-making, along with the associated biases. Do individuals choose for more rational investing options or those influenced by psychological biases . This paper examines the difficulty modern individual investors face in applying the well-established principles of traditional finance theories to their decision-making processes, potentially due to psychological barriers or cognitive heuristics. Numerous individual investors prioritize their heuristics above established orthodox ideas, maybe stemming from self-assurance or excessive faith in their heuristics. Investment choices are sometimes driven by the investor's intuition, which may be irrational and may result in losses. Behavioral finance seeks to connect human psychology with financial principles. Nonetheless, it remains in its nascent phase in India, although is rapidly gaining traction. This research will examine the trigger points in the investor decision-making process and seek to comprehend the inconsistencies within neo-classical theories.