Investigate the Impact of Behavioral Factors on Investment Decisions of Investors

Investment decision-making is not only based on financial information but is also influenced by psychological and behavioral factors. This study examines the impact of behavioral factors—overconfidence, herding, availability bias, self-control bias, and anchoring bias—on investors’ investment decisions. The main objectives are to find the relationship between behavioral factors and investment decisions and to study how these factors affect investors’ decisions. The study also tries to identify which behavioral factors have the strongest effect on investment decisions. The research questions are: (1) What is the relationship between behavioral factors and investment decisions of investors? and (2) How do behavioral factors affect investors’ investment decisions? A quantitative research design was used, and data were collected through an online survey from retail investors of the Pakistan Stock Exchange (PSX). The population of the study was about 220,000 investors, and a sample of 506 valid responses was analyzed using convenience sampling. The results show that all behavioral factors have a positive and significant relationship with investment decisions. Regression analysis also shows that all behavioral factors significantly affect investment decisions, and overconfidence is the strongest factor. The model explains a good amount of change in investment decisions. The study concludes that investors are strongly influenced by behavioral biases, which can lead to irrational decisions. It is recommended that investors improve their financial knowledge, and financial institutions should provide training and awareness programs to help investors make better and more rational investment decisions.