Manifestations of Cognitive Heuristic-driven Bias and Their Impact on Investment Decision-making and Performance: A Systematic Literature Review

This article aims to systematically review the literature on cognitive heuristic-driven bias and its impact on investment management, identifying gaps and providing future directions for investors, researchers, and academics. The study critically reviewed 71 relevant articles in the Scopus database published between 1980 and 2023. It synthesised the literature on behavioural finance, particularly focusing on cognitive heuristic-driven biases and their influence on investment decision-making and performance. Investors in the financial market are influenced by cognitive biases such as overconfidence, representativeness, anchoring, availability, and adjustment heuristics. These biases impact investment decision-making and performance, potentially leading to suboptimal decisions and undermining market efficiency. Further research on other cognitive factors like the gambler’s fallacy and framing is needed and also explores the recognition of heuristic-driven bias. Investors, both individual and institutional, must be more aware of these biases. This study highlights that the global investor community is unknowingly affected by these biases. Understanding these biases is increasingly crucial due to the expanding investment market and the rise of individual investors in financial markets. This study is also significant for researchers, academics and professionals in the domain of behavioural finance, providing crucial insights into the influence of cognitive heuristic-driven biases in management activities.