The role of psychology in investment decision-making: exploring behavioural finance of financial literacy through SEM analysis

People naturally want to save money and grow it over time. This is where understanding your own financial psychology comes in. Making investment decisions is like a personal art and science, crucial for your financial well-being. The various cognitive biases like overconfidence, perception, representation, anchoring, cognitive dissonance, mental accounting, risk aversion, loss aversion, and narrow framing can significantly influence investors' decision-making processes. These biases may result in investors overestimating their knowledge, misinterpreting information, relying on past experiences, or sticking to fixed beliefs despite conflicting evidence. Understanding these biases is crucial for making objective and rational investment decisions. The study surveyed 250 postgraduate students in Bangalore who identified already as investors and found that fear of loss, aversion to regret, and mental accounting significantly impact investment decisions. Therefore, It is essential for investors to recognise and address their emotional and cognitive biases to make more informed and effective investment choices.