The Effect of Behavioural Biases in Investment Decision Making: A Study of Investors in Kolkata

Traditional capital market theories, such as the Capital Asset Pricing Model (CAPM) and the Efficient Market Hypothesis (EMH), operate under the assumption of a perfect market where taxes and transaction costs are absent, and all investors have equal access to complete information. However, in practice, investors are often influenced by behavioural biases such as overconfidence, regret, attention deficits, and trend-following. These biases can lead to suboptimal investment decisions and erode portfolio returns (Kahneman & Tversky, 1979; Barber & Odean, 2000). The objective of the study is to investigate the role of behavioural biases in shaping investment decisions by conducting a structured survey among investors in Kolkata. This study employs a combination of quantitative and qualitative analysis from surveys and interviews. Data from 158 investors in Kolkata were analysed using statistical tools like t-tests, ANOVA, and factor analysis to examine the impact of behavioural biases—such as overconfidence, loss aversion, herd behaviour, and anchoring—and their relationship with demographic factors. The findings reveal that investor psychology significantly impacts portfolio choices and highlights the importance of tailoring investment strategies to individual behavioural profiles.