A conceptual framework on the role of behavioral finance in investment decision making

This conceptual research paper examines the pivotal role of behavioral finance in investment decision making, proposing a comprehensive theoretical framework that integrates psychological factors with traditional financial theories. The study synthesizes extensive literature from classical finance theories to contemporary behavioral finance research, with particular emphasis on recent developments from 2019-2024. Through systematic analysis of key behavioral biases including overconfidence, anchoring, herding behavior, and loss aversion, this paper develops a four-construct conceptual model encompassing investor biases, risk perception, market conditions, and decision outcomes. The framework addresses significant gaps in understanding how psychological factors influence investment choices, providing both theoretical contributions to behavioral finance literature and practical implications for financial advisors, policymakers, and individual investors. Recent empirical evidence from studies conducted during the COVID-19 pandemic, the emergence of ESG investing, and cryptocurrency market developments further validates the relevance of behavioral considerations in modern investment contexts. The proposed framework offers a structured approach to understanding the complex interplay between cognitive biases and financial decision-making processes, paving the way for future empirical validation and cross-cultural research applications.