Title: Deciphering risk and behavioural biases in investment decision-making

Authors: Anushree Ganguly

Addresses: Rukmini Devi Institute of Advanced Studies, Outer Ring Rd., Block D, Sector 14, Rohini, Delhi, 110085, India

Abstract: Behaviour distinctly shapes individuals' risk tolerance and these biases influence perceptions of risk and drive decision-making in financial contexts. In this study, we investigate the impact of behavioural biases on risk tolerance, focusing on selective cognitive and emotional biases such as overconfidence, regret aversion, representativeness, anchoring and adjustment, herding, loss aversion, and mental accounting. The research aims to develop a comprehensive model that captures the complex relationships between prominent biases and risk tolerance with respect to investment decisions, accounting for the interdependencies and interactions among these variables. The research design is descriptive and exploratory, aiming to understand risk patterns driven by biases. Data was collected through structured questionnaire from 365 individuals, and a structural equation was used to analyse the relationship between biases and risk tolerance. Confirmatory factor analysis (CFA) was used to validate measurement models of behavioural biases and risk tolerance, while structural equation modelling (SEM) was used to analyse the relationship between behavioural biases and risk tolerance.

Keywords: anchoring; adjustment; behavioural finance; bias; herding; invest; loss aversion; mental accounting; overconfidence; regret aversion; representativeness; risk tolerance.

DOI: 10.1504/AAJFA.2026.154697

Afro-Asian Journal of Finance and Accounting, 2026 Vol.16 No.4, pp.511 - 528

Received: 25 May 2024
Accepted: 08 Nov 2024
Published online: 10 Jul 2026 *

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