A Study on Human Behavioural Aspects on Individual Financial Decisions in Indian Context

Abstract

The study of behavioral finance is still in its infancy stage. The academic fraternity has only recently accepted behavioural finance as a feasible paradigm to explain how financial participants make decisions and, in turn, how these decisions affect financial markets. Indians are among the largest demographic sections in the world, and there is some evidence – anecdotal, theoretical, and empirical – that Indians suffer from cognitive biases on a different level than people of other cultures. By studying behavioral finance in India, we can, therefore, add to our understanding of the topics. This study aims to investigate the behavioural aspects influencing the individual financial decision making amongst Indians across various age groups, income sources, gender and native regions / domiciles. The objective and the scope of this project is to study two important theories in behavioural finance in Indian Context viz. prospects theory and mental accounting theory. Sample characteristics were checked using SPSS 20 and STATA 15. Multi-stage stratified sampling was used to collect a sample of 223 respondents. It was found that there are two important factors /biases of prospect theory namely- loss aversion and regret aversion besides mental budgeting bias of mental accounting, which affect the financial decision making of Indians and investments and these are important to be understood not only by the retail investors but also by the companies, which offer various investment instruments.