Impact of Heuristic-Driven Biases on Investment Decision-Making of Individual Investors: The Mediating Role of Risk Perception

Abstract

Investors do not behave rationally as traditional finance suggests, whereas they use mental shortcuts. This research aims to knowhow heuristic biases impact the individual investor’s investment decision who invested in the financial market. Also, attempt to check wheatear risk perception mediates the relationship. Cross-sectional research was done by adopting a structured and close-ended questionnaire survey method by obtaining data from 484 individual investors investing in the financial market. The study provides empirical insight into the relationship between second-order heuristic biases of the individual investor and irrational investment decision-making and checks the mediating role of risk perception. The results show the significant positive impact of heuristic bias on the irrational investment decision-making of individual investors. Risk perception partially mediates the relationship. The findings of this study encourage individual investors to understand and identify their biases or sentiments. This study will help create investors’ awareness to decide on their financial capacity after assessing all available alternatives.