<i>Navigating investment challenges:</i> financial literacy and digital advisory services in countering behavioural biases

Purpose This study aims to investigate the psychological determinants of investment behaviour, highlighting the two key behavioural biases (BB): the disposition effect (DE) and herding bias (HB). It looks at how financial literacy (FL) can help people make more logical judgements by getting rid of these biases and how AI-powered digital advisory services (DAS) can help people make more balanced investment choices. Design/methodology/approach The study draws on data from 357 individual investors throughout India, gathered through a structured questionnaire. To analyse relationships, it employs advanced statistical tools such as Hayes' PROCESS macro model, SPSS 22.0 and AMOS 20.0, providing a robust framework to dissect these complex dynamics. Findings The analysis reveals that the DE and HB significantly contribute to irrational investment decisions. FL plays a pivotal mediating role, linking the DE and HB to investment decisions, thereby fostering more rational choices. Additionally, DAS moderate these biases, reducing their influence and encouraging more reasoned investment choices. Research limitations/implications This study rethinks classical behavioural finance by presenting a hybrid model that incorporates FL and digital advice services as essential measures to alleviate cognitive biases. It highlights FL's dual role as both a cognitive skill and behavioural regulator, while positioning DAS as a digital nudging mechanism. The findings offer fresh theoretical insights and guide the development of tech-driven financial education and advisory frameworks aimed at improving investor decision-making. Originality/value This pioneering study uniquely bridges BB, FL and DAS, providing fresh insights into their interconnected roles within India's investment context.