BEHAVIORAL FINANCE: HOW EMOTIONS INFLUENCE INVESTMENT DECISIONS

Behavioral finance has emerged as a critical field challenging the traditional rational actor model of economic 
decision-making. This research paper investigates how emotions and psychological biases fundamentally 
influence investment decisions among retail investors. Through a mixed-methods approach combining 
quantitative survey analysis (n=60 respondents) and qualitative behavioral pattern assessment, this study 
identifies three primary emotional drivers—fear, overconfidence, and regret—and four major cognitive 
biases—loss aversion, herding behavior, overconfidence bias, and recency bias—that distort investment 
choices. The study reveals that 70% of surveyed investors acknowledge emotions significantly affect their 
investment decisions, with younger investors (18–25 years) showing higher emotional volatility and lower risk 
management discipline. Key findings demonstrate that investors with higher emotional awareness and 
experience make more rational decisions, while those subject to strong emotional reactions exhibit patterns of 
panic selling, overtrading, and herd-following behavior. This research provides empirical evidence that 
emotional intelligence and systematic investment processes can mitigate behavioral biases, offering practical 
strategies for both individual investors and financial advisors to build more disciplined, long-term investment 
approaches. 
Keywords: Behavioral finance, investor psychology, emotions, cognitive biases, loss aversion, overconfidence, 
herding behavior, investment decision-making, financial markets