Impact of behavioural biases in portfolio investment decision making process
This article presents a new approach in the analysis of portfolio investment decisions, namely behavioral finance. Behavioral finance is the study of the influence of the psychological factors on financial markets evolution. Psychology, including aspirations, cognition, emotions, and culture, is at the center of behavioral finance. Behavioral finance paradigm suggests that investment decision is influenced in a large proportion by psychological and emotional factors. It has been identified thatthe Investors do not always act rationally or consider all of the available information in their decision making process. As a result, they regularlymake errors. It turns out too that the errors they make repeat in the same way, and are, herefore, termed systematic errors. Luckily, because of this systematic character, these errors are often predictable and avoidable. The common errors that they make are also termed as behavioral biases some of them are overconfidence, anchoring, herding, regret aversion, misunderstanding, randomness, mental accounting, representativeness etc. This paper examines the role of behavioral biases on investment decision making process.