The Impact of Sentiment and Cognitive Load on Investment Decisions: A Conceptual Framework

This conceptual paper examines the hardship that emotional cognition inhibits in investment decisions in light of neurofinance. Based on theories from emotional decision-making, cognitive load theory, and behavioural finance, the present paper builds a framework to gain insight into the relationship between investor sentiment, mental processing, and decision outcomes. Before cognition load, positive sentiment leads to more risk-taking and negative sentiment to risk averse, but cognition load decrease this effect. High cognitive load, such as well-explained when investors are confronted with complex financial decisions, may prejudice their cognitive information process and lead to emotional-based decisions. This research, which combines neuroscience, psychology, and finance to gain a better understanding how investors’ mental states and external emotional stimuli affect their financial decisions. There are implications from the findings for financial advisors, policymakers, and investors to construct strategies that can enhance decision-making efficiency and risk management.