Published April 16, 2026 | Version v1
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BEHAVIORAL BIASES IN RETAIL INVESTING: A Comparative Empirical Study of Advised versus Self-Directed Retail Investors in the Indian Financial Market

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 This research tests for differences in behavior bias levels between advised and self-directed Indian retail investors. We used primary survey data collected on 135 retail investors from the Indian market in early 2026. We construct five bias variables (overconfidence, herding, loss aversion, anchoring and disposition effect) using an updated Likert scale. A two-stage item-purification procedure was conducted, and scales were validated using Cronbach's Alpha,  independent t-tests, and multiple regression. Advising investors (n=23) had uniformly lower scores across all five bias dimensions than their self-directed counterparts (n=112). Only the disposition effect was statistically significantly different between the two groups (t(132)=2.327, p=.022, d=.533). The result for overconfidence (p=.060, d=.434) nearly reached statistical significance and was possibly influenced by group size limitations within the advised group. Multiple regression indicates that investor type significantly predicts total behavioral bias in a negative direction (B=.249, p=.007) even after controlling for age, experience and
education (explaining 9.8% variance). Interestingly, investment experience positively predicts aggregate bias (B=.121, p=.022), mirroring the literature on expert overconfidence. This study empirically demonstrates in an emerging market that advice reduces behavior bias (action biased ones); cognition-proximal biases like anchoring are far less affected

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Dates

Submitted
2026-04-16
The Indian retail investment landscape has witnessed unprecedented growth since 2020, and by 2024, there were more than 150 million active demat accounts as per SEBI. Nevertheless, participation growth in the Indian retail market has far outpaced improvement in investment decision-making. Traditional finance theory, the foundation of Fama's (1970) Efficient Market Hypothesis and Rational Expectations models, presumes objective processing of information and rational utility-maximising behavior by investors. Decades of empirical evidence have indicated that behavioral biases and heuristics systematically misguide individual investment decisions (Kahneman & Tversky, 1979).

References

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