Unveiling the Mysteries of Behavioral Finance: Exploring the Impact of Psychological Factors on Investor Decision-Making

Abstract

This research delves into the intricate realm of behavioral finance, aiming to unravel the complexities that govern investor decision-making processes. By scrutinizing the influence of psychological factors on financial choices, this study seeks to bridge the gap between traditional economic theories and the observed deviations in real-world market behaviors. Employing a comprehensive literature review and empirical analysis, we explore the profound impact of cognitive biases, emotions, and social dynamics on investment decisions. The investigation employs a multi-faceted approach, combining quantitative data analysis with qualitative insights from behavioral psychology. Through the lens of prospect theory, loss aversion, overconfidence, and other behavioral biases, this research aims to elucidate the mechanisms through which individuals deviate from rational decision-making in financial contexts. Additionally, the study explores the role of market sentiment, media influence, and social networks in shaping investor perceptions and behaviors.