Enhancing Rational Investment Behavior: A Systematic Review of the Impact of Financial Literacy on Cognitive Biases in Investment Behavior

Abstract: The link between cognitive biases in investment behavior and financial literacy is examined in depth in this systematic review. It becomes clear that financial literacy is a powerful tool for reducing biases and promoting wise investment decisions. The collection of research highlights how financial education initiatives and digital tools improve the ability of individuals for making decisions and reduce their susceptibility to biases like overconfidence. The objectives of the research include classifying literature, identifying trends, and making inferences regarding the contribution of financial literacy to rational investment behavior. The research topics center on how financial literacy affects cognitive biases. The results draw attention to the complex links that exist between behavioral traits, financial literacy, and cognitive biases. The complicated nature of behavioral processes is highlighted by theoretical discoveries. However, our studies highlight the significance of individualized financial education. The assessment features the importance of financial literacy in allowing individuals to overcome preconceived notions, fostering rational decision-making, and enhancing their overall financial wellbeing. It also creates space for creative approaches to financial decision-making. Keywords: Behavioral Finance, Investment Decision, Financial Literacy, Cognitive Biases