Cognitive Biases and Emotional Triggers: Behavioural Insights into Investment Decision-making

Behavioral finance integrates psychological insights into the ways the financial business venture is granted and combines them to challenge the Efficient Market Hypothesis (EMH) as well as market anomalies as shown in the occurrences of bubbles, crashes, and mispricing. This study examines the effects of cognitive biases such as overconfidence, loss aversion, and herding, and emotional triggers of fear and greed, on investment behavior. Data from 500 participants using a mixed method approach of surveys, interviews, and statistical analysis show that overconfidence is associated with excessive trading and insufficient diversification, while loss aversion and herding contribute significantly to market dynamics. These biases are exacerbated by emotional triggers that feedback upon themselves to keep irrational behaviors happening and market instability. Our findings highlight the need for behavioral insight into risk management frameworks and regulatory policies. This research adds to the growing literature by showing how biases and emotions affect the system and how education, technological interventions, and policy reforms can help foster informed decision-making and market efficiency.