A

PROJECT REPORT
ON
“A STUDY OF BEHAVIORAL FINANCE BIASES AND ITS
IMPACT ON INVESTMENT DECISIONS OF INDIVIDUAL
INVESTORS”

SUBMITTED BY:
VRUTTI SONANI
MBA (FINANCE 2021-2023)

UNDER THE GUIDANCE OF

DR. VATSAL PATEL

DEPARTMENT OF BUSINESS AND INDUSTRIAL

MANAGEMENT, SURAT

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 CERTIFICATE OF DEPARTMENT

DEPARTMENT OF BUSINESS AND INDUSTRIAL MANAGEMENT

VEER NARMAD SOUTH GUJARAT UNIVERSITY

CERTIFICATE

This is to certify that Vrutti Piyush Sonani has completed her project report as a
part of MBA curriculum. She has successfully completed a study on “A study on
Behavioral finance biases and its impact on investment decisions of individual
investors”.

Her work is found to be the standard required of MBA curriculum.

Dr. Vatsal Patel Dr. Manish Sidhpuriya

(Proffessor) (Head of Department)

DBIM, Surat DBIM, Surat

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 DECLARATION

I, the undersigned, Ms. Vrutti Piyush Sonani, hereby declare that this project work
entitled “BEHAVIORAL FINANCE BIASES AND ITS IMPACT ON
INVESTMENT DECISIONS OF INDIVIDUAL INVESTORS” is my own work
and is not submitted to any other University or Institution for any other purpose. This
is purely meant for academic purpose only. This report is submitted in partial
fulfillment of the requirements for the degree of Master of Business Administration.

Vrutti Sonani
(MBA Finance)
SPID no:
Date:
Place: Surat

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 ACKNOWLEDGEMENT

I would like to thank Department of Business and Industrial Management for giving
me the opportunity to do this project study report (winter report). I’d like to thank
Dr. Vatsal Pater Sir, my project report mentor for guiding me with the completion
of this report. I would like to thank all respondent who have helped and co-operate
with me during the course of my survey.

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 INDEX

Executive Summary……………………………………………………………...01

1 Introduction…………………………………………………………....02

1.1 Behavioral finance……………………………………………………....03

1.2 Traditional finance VS behavioral finance……………………………...05

2 Theoretical Framework…………………………………………….....07

2.1 Overview…………………………………………………………….....07

2.2 Background and Evolution……………………………………………..08

2.3 Behavioral Biases……………………………………………………....09

2.3.1 Overconfidence Bias………………………………………………….. 09

2.3.2 Herd Mentality Bias………………………………………………….....10

2.3.3 Anchoring Bias………………………………………………………......11

2.3.4 Disposition Bias………………………………………………………....12

2.3.5 Loss Aversion Bias……………………………………………………...13

2.3.6 Confirmation Bias……………………………………………………....14

2.3.7 Familiarity Bias………………………………………………………….15

3 Review of Literature…………………………………………………....17

4 Research Methodology………………………………………………....20

4.1 Objectives of the study…………………………………………………..20

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 4.2 Scope of the study……………………………………………………...20

4.3 Research Design………………………………………………………..20

4.4 Data collection source………………………………………………….21

4.5 Sampling Plan…………………………………………………………..21

4.6 Study Hypothesis………………………………………………………21

4.7 Data analysis technique and tools……………………………………....21

4.8 Benefits of the study…………………………………………………....22

4.9 Limitations of the study…………………………………………...........22

5 Data Analysis and Interpretation……………………………….........23

5.1 Frequency Distribution……………………………………………........23

5.2 Cross Tabulation……………………...…………………………...........40

5.3 Chi-Square Test…………………………………………………….......44

6 Findings and Conclusion……………………………………………..49

6.1 Findings……………………………………………………………......49

6.2 Conclusion…………………………………………………………......52

Bibliography……………………………………………………………………...53

Annexure…………………………………………………………………………55

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 EXECUTIVE SUMMARY

This study examines the impact of behavioral finance and Biases on the investment
decisions of individual investors. The research examines how psychological biases
affect investment decisions and how investors can mitigate their effects through
education and awareness. A survey was conducted among individual investors to
understand their investment behavior, including their risk tolerance, emotion
towards investment, and investment objectives. The study found that individual
investors often make irrational investment decisions due to cognitive biases such as
overconfidence, loss aversion, herding behavior, emotional biases, confirmation
biases, experimental bias, disposition bias, and familiarity bias highlights the
importance of understanding behavioral finance and its impact on investment
decisions.

Key words: Behavioral finance and biases, overconfidence bias, disposition bias,
emotional bias, confirmation bias, herding bias

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 CHAPTER: 1
INRODUCTION

‘Behavioral Finance is becoming an integral part of decision-making process

because it heavily influences the investors’ performance’. (Banerjee, 2011)

Behavioral finance seeks to study the effects of human psychology that bring these biases into our
approaches to investing and financial markets. Awareness of these different biases and where they
come from can help us as investors improve our rational thinking and decision-making abilities.
Behavioral finance is a field of study that attempts to understand how psychological biases
influence financial decision-making. Combine ideas from psychology, economics and finance to
explain why people make financial decisions. Traditional finance theory assumes that investors
are rational and make decisions based on objective information and self-interest. However,
behavioral finance recognizes that investors are subject to cognitive biases, emotional influences
and social factors that can lead to irrational investment decisions. These prejudices can lead to
overconfidence, loss aversion, herding behavior and other irrational decision-making patterns. As
a result, behavioral finance is increasingly attracting the attention of researchers, practitioners, and
policymakers. This article aims to examine the influence of behavioral finance on the investment
decisions of individual investors. In particular, we will examine how cognitive biases influence
investment decisions and how investors can mitigate their impact through education and
awareness. The results of this research will help advance the understanding of behavioral finance
and its implications for individual investors. For decades, psychologists and sociologists have
argued against the mainstream theories of finance and economics, arguing that humans are not
rational, utility-maximizing agents and that real-world markets are inefficient. The field of
behavioral economics emerged in the late 1970s to address these issues by collating a wide range
of cases in which people consistently behave "irrationally." The application of behavioral
economics to the world of finance is known as behavioral finance. From this point of view, it is
not difficult to imagine the stock market as a person: it has mood swings (and price swings) that
can range from anger to exhilaration. Behavioral finance assumes that people often make financial
decisions based on emotions and cognitive biases, rather than being rational and calculating. For

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example, investors often take losing positions rather than feel the pain of a loss. The instinct to
move with the herd explains why investors buy in bull markets and sell in bear markets. Behavioral
finance is useful in analyzing market returns.

''It's understated to say that financial health affects mental and physical health and vice versa. It's
just a circular thing that happens," said Dr. Carolyn McClanahan

1.1 Meaning of Behavioral Finance

Behavioral finance is a discipline that attempts to explain and increase understanding regarding
how the cognitive errors (mental mistakes) and emotions of investors influence the decision
making process. It integrates the field of psychology, sociology, and other behavioral sciences to
explain individual behavior, to examine group behavior, and to predict financial markets.
According to behavioral finance people are not always rational: many investors fail to diversify
trade too much, and seem to selling winners and holding losers. Not only that, but they deviate
from rationality in predictable ways.

Richard Thaler (1999) states “Behavioral finance is no longer as controversial a subject as it once
was. As financial economists become accustomed to thinking about the role of human behavior in
driving stock prices, people will look back at the articles published in the past 15 years and wonder

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what the fuss was about. I predict that in the not-too-distant future, the term “behavioral finance”
will be correctly viewed as a redundant phrase. What other kind of finance is there? In their
enlightenment, economists will routinely incorporate as much “behavior” into their models as they
observe in the real world. After all, to do otherwise would be irrational.”

Thaler’s view is likely to prove optimistic. Finance researchers are likely to be studying large,
highly competitive asset markets and largely ignore behavioral modifications to traditional theory.
Even relatively new field, Behavioral Finance is growing very fast, in explaining not only how
people make financial decisions and how markets functions, but also how to improve them.

As the evidence of the influence of psychology and emotions on decisions became more
convincing, behavioral finance has received greater acceptance. “Behavioral finance relaxes the
traditional assumptions of financial economics by incorporating these observable, systematic and
very human departures from rationality into standard models of financial markets. The tendency
for human beings to be overconfident causes the first bias in investors, and the human desire to
avoid regret prompt the second” (Barber and Odean,1999). Individual investor and their behavior
had received lot of consideration and focus of interest of many scientists not only being confided
only to economist, but, due to the inclusion of the findings and the methodology of psychology
into financial studies. Despite many debates, this has slowly led to the establishment of behavioral
economics and behavioral finance as widely recognized sub-disciplines.

Behavioral finance promises to make economic model better at explaining systematic investor
decisions. Taking into consideration their emotions and cognitive errors and how these influence
decision making. So behavioral finance is not a branch of standard finance; it is replacement
offering a better model of investor psychological decision process.

Thus behavioral finance can be described in the following ways:

Behavioral finance is the integration of classical economics and finance with psychology and the
decision making sciences.

Behavioral finance is an attempt to explain what causes some of the anomalies that have been
observed and reported in the finance literature.

Behavioral finance is the study of how investors systematically make errors in judgment or ‘mental

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mistakes’.

According to behavioral finance, investor’s behavior in market depends on psychological

principles of decision making, which explains why people buy and sell investments. It focuses on
how investors interpret information and act on information to implement their financial investment
decisions. In short psychological process and biases influences investors decision making and
influence the market outcomes.

1.2 Traditional vs Behavioral Finance: Summing Up the Differences

The primary difference between traditional finance and behavioral finance is that traditional
finance suggests that investors consistently gain knowledge, data, and various immaculate
information, while behavioral finance suggests that investor behavior is not completely rational.

Since investors can apprehend the market precisely, their financial actions are exceptionally
scrupulous.

Behavioral finance states that people cannot process all the information, implying that they do not
act entirely rationally. Given that the particulars are impeccable somehow, people would still make
judgment errors. As we all know, people are not perfect.

Contrary to the approach adopted by behavioral finance, in the real world, traditional finance
asserts that self-control causes the market to be perfect and efficient.

Behavioral finance believes that emotions cause the market to be unpredictable and imperfect,

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resulting in market anomalies. Since emotions alter constantly, it has a direct impact on the market.
For instance, we see the stock market fluctuating so much. While the value of some stocks soars,
others’ values plummet.

Behavioral finance also suggests that people’s decisions are affected by social factors such as
friends, family, social behavior, self-understanding, tradition, and heuristics. When you think
about it, you will most likely buy the products that all your friends own, regardless of how better
another product is. All these emotion-related factors cause one to deviate from rational decision-
making.

Ultimately, traditional vs behavioral finance comes down to the fact that behavioral finance is
more psychological based while traditional finance is more statistical based.

The importance of behavioral finance

Most of the major booms and busts in the stock market are caused by the investors' emotions,
ranging from irrational exuberance to manic depression, and their reaction to external events.

When times are good, the economy is doing well, and external micro and macroeconomic factors
are favorable, investors put their money in the market even when the valuations are exorbitantly
high. However, in times of crisis and recessions, when companies/indexes are trading at attractive
valuations, no one wants to buy equities because of excessive fear in the market.

Many investors were affected by crises such as the 2008 Financial crisis, etc. But traditional
models of finance that treated all investors as rational actors making decisions based on all
available information failed to predict these events.

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 CHAPTER: 2

THEORETICAL FRAMEWORK
2.1 OVERVIEW

Behavioral finance is a field of study that combines principles of psychology and economics
to understand the behavior of individuals and groups in financial decision-making. Traditional
finance theories assume that individuals make rational decisions based on all available
information. However, behavioral finance suggests that psychological biases, emotions, and
cognitive errors can influence financial decision-making.

Behavioral finance identifies several common biases that can affect investment decisions, such as
overconfidence, loss aversion, herding behavior, and framing effects. Overconfidence bias can
lead individuals to believe that they have more control over outcomes than they actually do, while
loss aversion can cause individuals to prioritize avoiding losses over achieving gains. Herding
behavior can result in individuals following the crowd rather than making independent decisions,
and framing effects can influence how individuals interpret information based on how it is
presented to them.

Behavioral finance also examines the impact of emotions on financial decision-making. Fear,
greed, and regret are common emotions that can influence investment decisions. Fear can cause
individuals to sell investments at the wrong time, while greed can lead to overly optimistic
expectations. Regret can result in individuals making decisions to avoid feeling regret, rather than
making decisions based on rational analysis.

Understanding behavioral finance can help individuals and institutions make better financial
decisions by recognizing their own biases and emotions. It can also inform the design of financial
products and policies that take into account the behavior of investors.

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2.2 BACKGROUND AND EVOLUTION OF BEHAVIORAL FINANCE IN
BRIEF

Behavioral finance emerged in the late 1970s as a response to the limitations of traditional
finance theories that assumed people are rational and make decisions based on all available
information. Early research by psychologists Amos Tversky and Daniel Kahneman challenged
these assumptions by demonstrating that people's decisions are influenced by psychological biases
and emotions. This led to the identification of common biases, such as loss aversion and herding
behavior, which can impact investment decisions. In the 2000s, researchers began to apply
behavioral finance to investment strategies, incorporating sentiment indicators and other
behavioral factors. Today, the field continues to evolve, with growing interest in the impact of
social and cultural factors and new technologies on financial decision-making. Behavioral finance
has the potential to significantly improve our understanding of financial decision-making and
promote more rational decision-making in the investment industry.

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2.3 BEHAVIORAL BIASES

Behavioral biases are psychological tendencies or patterns of thinking that can influence
decision-making in a way that deviates from rational, objective analysis. In the context of financial
decision-making, these biases can lead to suboptimal investment choices, which can have negative
consequences for individuals and organizations. Some common behavioral biases include:

(1). Overconfidence Bias

(2). Herd Mentality

(3). Anchoring Bias

(4). Disposition Bias

(5). Loss Aversion

(6). Confirmation Bias

(7). Familiarity Bias

2.3.1 Overconfidence Bias

Overconfidence bias is a tendency to hold a false and misleading assessment of our skills,
intellect, or talent. In short, it’s an egotistical belief that we’re better than we actually are. It can
be a dangerous bias and is very prolific in behavioral finance and capital markets. Overconfidence
bias is the tendency for a person to overestimate their abilities. It may lead a person to think they’re
a better-than-average driver or an expert investor. Overconfidence bias is a cognitive bias in
behavioral finance that refers to an individual's tendency to overestimate their own abilities, skills,
or knowledge. It is a prevalent bias that can lead to poor financial decisions, overtrading, and
excessive risk-taking.

Behavioral finance theory suggests that overconfidence bias arises from the tendency of
individuals to rely too heavily on their past successes and ignore or downplay their failures. This
can lead to an overestimation of one's abilities and a false sense of security, leading individuals to
take on greater risks than they can handle. Overconfidence bias can manifest in various ways, such
as overestimating one's financial expertise, overestimating the accuracy of one's predictions, or

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overestimating the potential returns of a particular investment. This bias can lead investors to take
on overly risky investments, trade excessively, and fail to diversify their portfolios properly.

The effects of overconfidence bias can be particularly pronounced in situations where individuals
are operating in complex and uncertain markets. For example, in the stock market, overconfidence
bias can lead investors to hold onto stocks that have performed well in the past, even if the
underlying fundamentals have changed, leading to significant losses. Overconfidence bias is also
a particular challenge for active investment managers, who often believe they have the expertise
and skill to outperform the market consistently. This bias can lead them to take on more significant
risks and incur higher fees, often leading to underperformance relative to a low-cost index fund.

Several strategies can help individuals avoid the negative consequences of overconfidence bias.
For example, individuals can seek out feedback from others, diversify their portfolios, and develop
a disciplined investment strategy that is consistent with their long-term financial goals.

Overconfidence bias is a prevalent cognitive bias in behavioral finance that can lead to poor
financial decisions, excessive risk-taking, and underperformance. It is crucial for individuals to be
aware of this bias and develop strategies to mitigate its impact on their financial decision-making.
Overconfidence bias may lead clients to make risky investments.

2.3.2 Herd Mentality

Herd mentality is a behavioral phenomenon in which individuals follow the actions or

decisions of a group, rather than making independent choices based on their own analysis or
reasoning. In behavioral finance, herd mentality can lead to irrational decision-making, as people
may make choices based on the actions of others, rather than on objective information.

‘Herd behavior because they are concerned of what others think of their
investment decisions’ (Scharfstein and Stein, 1990).

Herd mentality can be seen in a variety of situations, from financial markets to social trends and
fads. In financial markets, herd behavior can lead to the formation of bubbles and crashes, as
investors follow the actions of others without considering the underlying fundamentals of the
market. For example, during a stock market bubble, investors may continue to buy stocks even as
prices become increasingly overvalued, simply because they see others doing the same. Herd

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behavior can also occur in response to news or information that spreads rapidly through a group,
leading to a rush of individuals making similar decisions. For example, if a rumor spreads quickly
that a particular stock is about to skyrocket in value, many investors may rush to buy that stock
without carefully analyzing the underlying fundamentals.

In some cases, herd behavior can be rational, such as in situations where following the actions of
a group can reduce risk or uncertainty. For example, if many investors are selling a particular stock,
it may be a signal that there is negative news or uncertainty about the company, and following the
group may be a rational choice. However, in many cases, herd behavior is driven by emotional
factors such as fear, greed, or a desire to fit in with a group. These emotional factors can lead to
irrational decision-making and can exacerbate market volatility.

Herd mentality is an important concept in behavioral finance, as it can help to explain why markets
can be so unpredictable and why individual investors may make irrational decisions. By
understanding the causes and effects of herd behavior, investors may be better able to make
informed decisions based on objective analysis rather than simply following the crowd.

2.3.3 Anchoring Bias

Anchoring bias is a cognitive bias that occurs when individuals rely too heavily on the first
piece of information they receive when making a decision, and use it as a reference point, or
"anchor", for subsequent judgments or decisions. In behavioral finance, anchoring bias can lead to
suboptimal decision-making, as individuals may fail to consider other relevant information or
adjust their decisions based on new information.

Anchoring bias can be seen in a variety of financial contexts, such as when investors rely too
heavily on the price at which they purchased a stock or other asset, even if the current market
conditions have changed significantly. For example, an investor who purchased a stock for $50
may be reluctant to sell the stock even if the market price has dropped to $30, as they may anchor
their decision to the original purchase price.

Similarly, anchoring bias can also occur in the context of financial forecasts or estimates. If an
investor receives an overly optimistic or pessimistic estimate of a company's future earnings, they
may anchor their expectations to that estimate, even if subsequent information suggests that the

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estimate was too high or too low. Anchoring bias can also occur when investors rely too heavily
on financial news or media reports. For example, if a news report highlights a particular stock as
a "hot pick" or "must-buy", investors may anchor their decision to that information, without
conducting their own independent research or analysis.

To mitigate the impact of anchoring bias on financial decision-making, it's important for investors
to remain open-minded and willing to consider new information and different perspectives. This
may involve seeking out diverse sources of information, conducting their own independent
analysis, and avoiding making decisions based solely on a single piece of information or reference
point. Additionally, investors should be willing to adjust their decisions based on new information,
rather than remaining anchored to their initial judgments or expectations.

2.3.4 Disposition Bias

Disposition bias is a cognitive bias in behavioral finance where individuals tend to hold onto
assets that have appreciated in value and sell assets that have declined in value, even if it may be
more rational to do the opposite. This bias can lead to suboptimal investment decisions and reduced
returns over time. The disposition bias can be explained by the fact that individuals are often more
concerned with the emotional pain of losses than the pleasure of gains. As a result, investors may
be reluctant to sell assets that have declined in value because doing so would result in a realized
loss. Similarly, individuals may be hesitant to sell assets that have appreciated in value because
they are emotionally attached to the asset and do not want to miss out on potential future gains.

This bias can lead to suboptimal investment decisions because it can result in a portfolio that is
heavily weighted towards underperforming assets. For example, an investor may hold onto a stock
that has appreciated in value and has become overvalued, while selling a stock that has declined
in value but may be undervalued. To mitigate the impact of disposition bias on investment
decisions, individuals can use several strategies. One approach is to set clear investment goals and
develop a disciplined investment strategy that is consistent with those goals. This can help
individuals avoid making impulsive decisions based on emotions or short-term market
fluctuations.

Another strategy is to use an objective measure of value, such as a price-to-earnings ratio or other
financial metrics, to determine when to sell an asset. By using an objective measure of value,

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investors can make rational investment decisions based on fundamentals rather than

Furthermore, diversifying investments can help reduce the impact of disposition bias on
investment decisions. By spreading investments across multiple asset classes, investors can reduce
their exposure to any one investment and minimize the potential impact of losses.

Disposition bias is a cognitive bias in behavioral finance that can lead to irrational investment
decisions. By setting clear investment goals, developing a disciplined investment strategy, using
objective measures of value, and diversifying investments, individuals can mitigate the impact of
this bias on their financial decision-making and pursue a more effective investment strategy.

2.3.5 Loss Aversion

Loss aversion bias is a cognitive bias that has significant implications for financial decision-
making in behavioral finance. This bias refers to the tendency of individuals to feel the pain of
losses more acutely than they experience pleasure from equivalent gains. This bias can be
explained by the fact that losses are emotionally more salient and have a stronger impact on
individuals than equivalent gains. For example, the psychological pain associated with losing
Rs.100 is often greater than the pleasure of gaining Rs.100.

In behavioral finance, loss aversion bias can lead to irrational decision-making. Individuals may
be more willing to take risks to avoid losses than to pursue gains, which can result in suboptimal
investment decisions. For example, an investor may hold onto a losing investment in the hope of
a future rebound, even though it may be more rational to sell the investment and cut their losses.
Loss aversion bias can also lead to a conservative investment strategy, where individuals avoid
high-risk investments, even if the potential reward justifies the risk. This can result in missed
opportunities for significant gains. To mitigate the impact of loss aversion bias on financial
decision-making, individuals can use several strategies. One approach is to focus on potential gains
rather than potential losses. By framing investment decisions in terms of potential gains,
individuals may be more willing to take risks and pursue opportunities that have a high potential
for reward.

Another strategy is to set clear investment goals and develop a disciplined investment strategy that
is consistent with those goals. This can help individuals avoid making impulsive decisions based

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on emotions or short-term market fluctuations. Additionally, diversifying investments can help
reduce the impact of loss aversion bias on investment decisions. By spreading investments across
multiple asset classes, investors can reduce their exposure to any one investment and minimize the
potential impact of losses.

In conclusion, loss aversion bias is a cognitive bias in behavioral finance that can lead to irrational
financial decision-making. By focusing on potential gains, setting clear investment goals,
developing a disciplined investment strategy, and diversifying investments, individuals can
mitigate the impact of this bias on their financial decision-making and pursue a more effective
investment strategy.

2.3.6 Confirmation Bias

Confirmation bias is a cognitive bias in which individuals tend to search for, interpret, and
remember information in a way that confirms their pre-existing beliefs or hypotheses, while
disregarding or discounting information that contradicts those beliefs or hypotheses. It is a
pervasive bias that affects individuals across many domains, including politics, religion, and
finance.

In behavioral finance, confirmation bias can lead to individuals making financial decisions based
on incomplete or misleading information, which can result in significant losses. For example, an
investor who believes that a particular stock is undervalued may only seek out information that
confirms this belief, ignoring or dismissing any data that suggests the stock may be overvalued or
have significant risks. Confirmation bias can also manifest in situations where individuals have
already made a financial decision and then seek out information to justify that decision, rather than
objectively evaluating all available information. For example, an investor who has purchased a
stock that has performed poorly may only seek out information that confirms their belief that the
stock will eventually rebound, rather than objectively evaluating the reasons for the stock's
underperformance and considering whether it may be time to sell.

Confirmation bias can be particularly challenging to overcome because individuals are often
unaware that they are engaging in this type of biased thinking. However, several strategies can
help individuals avoid the negative consequences of confirmation bias. For example, individuals
can seek out information from diverse sources, actively consider alternative viewpoints, and
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engage in critical thinking to evaluate all available information objectively.

In short, confirmation bias is a pervasive cognitive bias in behavioral finance that can lead
individuals to make poor financial decisions based on incomplete or misleading information. It is
crucial for individuals to be aware of this bias and develop strategies to mitigate its impact on their
financial decision-making. By seeking out diverse information, actively considering alternative
viewpoints, and engaging in critical thinking, individuals can make more informed and objective
financial decisions.

2.3.7 Familiarity Bias

Familiarity bias is a cognitive bias in behavioral finance where individuals tend to invest in
assets or companies they are familiar with, even if it may not be rational to do so. This bias can
lead to a portfolio that is heavily concentrated in a few assets or industries, which can increase the
risk of underperformance or losses.

The familiarity bias can be explained by the fact that individuals tend to feel more comfortable
investing in assets or companies they are familiar with because they believe they have more
information and knowledge about those assets. This bias can lead to investors making investment
decisions based on anecdotal or subjective information rather than objective analysis of the asset
or industry.

For example, an investor may be more likely to invest in a technology company they are familiar
with, even if the company's financial performance or valuation may not justify the investment.
This bias can lead to overconfidence in the investor's ability to evaluate the investment and may
result in a portfolio that is not well-diversified.

To mitigate the impact of familiarity bias on investment decisions, individuals can use several
strategies. One approach is to develop a disciplined investment strategy that is based on objective
analysis of the asset or industry, rather than subjective familiarity or anecdotal information. This
can help investors avoid making impulsive decisions based on emotions or cognitive biases.

Another strategy is to diversify investments across multiple asset classes and industries. By
spreading investments across different sectors and asset classes, investors can reduce their
exposure to any one investment and minimize the potential impact of losses. Furthermore, seeking

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professional advice and staying informed about market trends can help individuals make rational
investment decisions that are consistent with their long-term goals. This can help investors avoid
the temptation to invest in assets or companies they are familiar with and focus on building a well-
diversified portfolio that is designed to achieve their investment objectives.

familiarity bias is a cognitive bias in behavioral finance that can lead to suboptimal investment
decisions. By developing a disciplined investment strategy, diversifying investments, seeking
professional advice, and staying informed about market trends, individuals can mitigate the impact
of this bias on their financial decision-making and pursue a more effective investment strategy.

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 CHAPTER: 3

REVIEW OF LITERATURE

 Jawaheer and Vikneswaran (2016) examined gender difference in investment decision

making among working population. This study elaborately considered three factors which
have influence on financial and investment decision making, such as financial literacy, risk
tolerance, and types of investment. Findings revealed that gender has an impact on
influencing investment decision making process. It was found that women show hesitation
to make investment decision; they consider it as a stressful process, whereas men show
higher eagerness to make investment decisions. Risk tolerance is low among women and
they preferred to make risk-free investments, whereas, men were interested in investing in
risky investment avenues. Findings revealed that
despite vast gender difference in investment decisions, both do not have effective financial
literacy. It was concluded that Mauritius investors tend to select the same investments and
follow herd mentality in selecting investments.
 Joychen Manuel & George Mathew (June2017), in the journal article on “Impact of
Cognitive Biases in Investment Decisions of Individual Investors in Stock Market” in
International Journal of Engineering Technology, Management and Applied Sciences
states that Individuals’ decision on investment in stock market is affected by so many
factors which are influenced by their day to day affairs. The present study focusing on the
extent to which these behavioral and cognitive factors influencing the investors investment
decisions
 Jaya Mamta Prosad (2014), in the paper on “Impact of Investors’ Behavioral Biases on the
Indian Equity Market and Implications on Stock Selection Decisions: An Empirical
Analysis” explores various noteworthy survey base studies in the field of behavioral
finance. These are divided into three themes. The first theme deals with factors behind the
individual investor behavior. The second theme analyses the effect of demographics on
investor behavior. The final strand investigates the role of psychological biases on investor
behavior.
 Swati Vishnoi (October 2015), in the paper “Impact of Behavioral Biases on Investment

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 Decision: With special Reference to Gwalior City” studies the Behavior or psychology of
investors while making investment decision is known as Behavioral finance.
 Amar Kumar Chaudhary (2013), in the paper on “Impact of Behavioral Finance in
Investment Decisions and Strategies – A Fresh Approach” in International Journal of
Management Research & Business Strategy examines the meaning and importance of
behavioral finance and its application in investment decisions.
 A study by Kalra and Jain (2016) explored the impact of overconfidence bias on investment
decisions in India. The study found that investors tend to be overconfident in their ability
to pick stocks, leading to excessive trading and poor portfolio performance. The authors
suggest that this behavior may be due to a cultural emphasis on individual achievement
and self-reliance.
 T.V. Raman, Gurendra Nath Bhardwaj and Kanan Budhiraja (June 2018), in the paper on
“Impact of Behavioral Finance in Investment Decision Making” in International Journal of
Civil Engineering and Technology (IJCIET) explains through the research paper how these
biases impact investment decision making process and what steps can be taken by
individual investors to make rational decisions.
 Sukanya.R & Thimmarayappa.R (2015), in the paper on “Impact of Behavioral biases in
Portfolio Investment Decision Making Process” in International Journal of Commerce,
Business and Management presents a new approach in the analysis of portfolio investment
decisions, namely behavioral finance. This paper examines the role of behavioral biases on
investment decision making process.
 Kumar and Tandel (2011), who found that Indian investors tend to exhibit herding behavior
in their investment decisions. The study used data from the Bombay Stock Exchange (BSE)
and found that investors tend to follow the herd when making investment decisions, leading
to irrational market movements.
 Rajalakshumi and Manivannan (2017) examined the influence of investors’ demographic
characteristics on investment patterns. This study emphasized that investment behavior is
concerned with investors’ ability to forecast, judge, evaluate and review the formalities for
financial decision making. Investors can be classified as short-term investors and long-term
investors based on their preference on duration of investments. Financial decision making
includes information collection, understanding financial affairs, and research and analysis

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of assets. Findings indicated that there is a significant difference between financial decision
making and gender of the investors. Gender has significant influence on investors behavior.
Selection of investments by male investors showed that they preferred risky assets as
compared with female investors. Findings also concluded that short-term investors prefer
risky assets than long-term investors in order to make superior returns on investments.

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 CHAPTER: 4

RESEARCH METHODOLOGY

4.1 Objective of The Study

 To determine Are investors really ‘Rational or ‘Intuitive’?

 To determine if there is any relationship between behavioral biases and investment
decisions
 To understand various behavioral biases and its effect on the investment decisions

4.2 Scope of The Study

This study focuses on different biases like Overconfidence Bias, Herd Mentality, Anchoring Bias,
Disposition Bias, Loss Aversion, Confirmation Bias, and Familiarity Bias. The scope of the study
is to investigate the concept of behavioral finance and its impact on making investment related
decisions. The study will explore the various behavioral biases that influence investors and how
these biases impact investment decision-making. The study will be conducted using a m primary
research methods. The primary research will involve the use of survey to collect data from
investors and investment professionals, and students from finance specialization. The study will
be targeted towards investors, investment professionals, and academics in the field of finance. The
findings of the study are expected to contribute to the existing literature on behavioral finance and
provide insights that can be used to improve investment decision-making.

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4.3 Research Design

A research design is the set of methods and procedures used in collecting and analyzing measure
of the variables specified in the research problem research.

This study used Descriptive Research Design

4.4 Data Collection Source

Primary Data

4.5 Sampling Plan

 Sample population: Investors of Surat city.
 Sampling area: Surat City.
 Sample size: Total 111 respondents.
 Sampling method: The sampling method used in research is simple
random sampling.

4.6 Hypothesis

H0 = There is no influence of behavioral biases on investment decisions

H1 = There is influence of behavioral biases on investment decisions

4.7 Data Analysis techniques and tools

The statistical tools for analyzing this study includes,

 Frequency distribution
 Cross tabulation
 Chi-Square Test

Data analysis and Interpretation have been conducted by using Statistical software SPSS and

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Excel.

4.8 Benefits of the study

 Improved Investment Decision-Making: The study will provide insights into the behavioral
biases that influence investors and investment professionals in their decision-making
processes. The findings of the study will inform investors and investment professionals on
strategies that can be used to mitigate the impact of these biases on investment decisions.
This can ultimately lead to improved investment decision-making.
 Increased Awareness of Behavioral Biases: The study will raise awareness of the impact
of behavioral biases on investment decision-making. This can help investors and
investment professionals identify their biases and take steps to overcome them.
 Enhanced Investor Protection: The study can help regulators and policymakers develop
policies and regulations that protect investors from the negative impact of behavioral
biases. This can enhance investor protection and confidence in the financial markets.

4.9 Limitations of study

 The study was restricted to Surat city.

 Many of the respondents might have not answered the questionnaire with complete
seriousness and may discriminate while answering.
 The information given by the respondents may be biased due to the use of questionnaire.
 Study on limited behavioral biases only.

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 CHAPTER: 5
DATA ANALYSIS AND INTERPRETATION

5.1 FREQUENCY DISTRIBUTION

1. GENDER

Frequencies of Gender
Levels Counts % of Total Cumulative %

Male 60 54.1 % 54.1 %

Female 51 45.9 % 100.0 %

Above chart and data reveals that there is 60 (54.1%) respondents are male and remaining other
51 (45.9%) respondents are female.

That means male investors are more than female investors.

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2. AGE

Frequencies of Age

Levels Counts % of Total Cumulative %

18-25 Years 57 51.4 % 51.4 %
25-35 Years 41 36.9 % 88.3 %
35-45 Years 10 9.0 % 97.3 %

>45 Years 3 2.7 % 100.0 %

Above chart and data table shows that there are 57 (51.4%) respondents from 18-25years age
segment, 41 (36.9%) respondents are from 25-35years age segment, 10 (9%) respondents are from
35-45years age segment and 3 (2.7%) respondents are from more than 45years age segment.

It means that according to this survey more investors are from Generation Z.

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3. EDUCATION
Frequencies of Education
Levels Counts % of Total Cumulative %

Under Graduate 11 9.9 % 9.9 %

Graduate 34 30.6 % 40.5 %
Post Graduate 56 50.5 % 91.0 %
Professional 8 7.2 % 98.2 %
PhD 2 1.8 % 100.0 %

Above chart and data table shows that there is total 11 (9.9%) respondents are under graduate,
34(30.6%) respondents are graduate, 56(50.5%) respondents are post graduate, 8(7.2%)
respondents are professional, and 2(1.8%) respondents are PhD holder.

4. OCCUPATION

Frequencies of Occupation

Levels Counts % of Total Cumulative %

Student 27 24.3 % 24.3 %
Business 22 19.8 % 44.1 %

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Service 38 34.2 % 78.4 %
Self employed 19 17.1 % 95.5 %
Home maker 5 4.5 % 100.0 %

Above chart and data table shows that the most common occupation level is Service with
38(34.2%) of the respondents falling into this category, there is 27(24.3%) respondents are
students, then in business 22(19.8%) respondents, there is 19(17.1%) respondents are Self-
employed, and home maker is the least common occupation level with only 5(4.5%) of respondents
falling into this category.

5. INCOME

Frequencies of Income

Levels Counts % of Total Cumulative %

below 10,000 13 11.7 % 11.7 %
10,000 to 20,000 28 25.2 % 36.9 %
21,000 to 30,000 49 44.1 % 81.1 %
31,000 to 40,000 13 11.7 % 92.8 %

> 40,000 8 7.2 % 100.0 %

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Above chart and data table interprets that, more respondents falling into 21,000 to 30,000 income
category i.e. 49(44.1%), 28(25.2%) respondents are falling into 10,000 to 20,000 income category,
then there is a draw between below 10,000 and 31,000 to 40,000 income category in this 13(11.7%)
respondents. Least respondents are falling into >40,000 income category.

6. SUFFICIENT KNOWLEDGE

Frequencies of Do you think that you have sufficient knowledge about it?
Levels Counts % of Total Cumulative %

YES 66 59.5 % 59.5 %

NO 45 40.5 % 100.0 %

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From the above chart and data table, it interprets that 66(59.5%) respondents are confident enough
for the knowledge of investment whilst remaining 45(40.5%) respondents are not much confident
about investment knowledge.

7. RELY MORE ON INTUITIONS AND GUT FEELINGS?

Frequencies of When it comes to decisions related to investments, you rely more on your intuitions and
gut feelings?

Levels Counts % of Total Cumulative %

Yes 77 69.4 % 69.4 %

No 34 30.6 % 100.0 %

Above chart and data table interprets that there are 77(69.4%) respondent believes on their gut
feeling while making an investment where 34(30.6%) respondents rely on rational thinking rather
than rely on intuitions and gut feelings.

8. POSITIVE NEWS OF COMPANY

Frequencies of suppose you have bought the shares of abc ltd, then will you give more
importance to the positive news related with abc ltd.?

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 Levels Counts % of Total Cumulative %

YES 87 78.4 % 78.4 %

NO 24 21.6 % 100.0 %

Above chart and data table interprets that 87(78.4%) respondent awaits for positive news of
company in which they bought shares where 24(21.6%) respondents don’t give importance to
positive news of the company.

9. IF YOUR INVESTMENT IS SHOWING LOSS

Frequencies of if your investment is showing loss, will you hold it for recovering the
loss?

Levels Counts % of Total Cumulative %

YES 60 54.1 % 54.1 %

NO 51 45.9 % 100.0 %

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Above chart and data table interpret that, if investment showing loss then 60(54.1%) respondents
will hold till its recover the loss whilst 51(45.9%) respondents will not hold the investment in the
fear of more loss.

10. EXPERIENCE
Frequencies of How much experience do you have with investing?
Levels Counts % of Total Cumulative %

Beginner (less 52 46.8 % 46.8 %

than 1 year)
Intermediate (1- 42 37.8 % 84.7 %
3 years)
Advanced (more 17 15.3 % 100.0 %
than 3 years)

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Above chart and data table interpret that there are more 52(46.8%) respondents are on beginner
level, 42(37.8%) respondents are on intermediate level, and on advance level there are only
17(15.3%) respondents. That means after Covid-19 more demat account has been opened.

11. PRIMARY REASON FOR INVESTING

Frequencies of What is your primary reason for investing?

Levels Counts % of Total Cumulative %

0 3 2.7 % 2.7 %
0, 1 9 8.1 % 10.8 %
0, 1, 2 6 5.4 % 16.2 %
0, 1, 2, 3 4 3.6 % 19.8 %
0, 1, 3 3 2.7 % 22.5 %
0, 2 1 0.9 % 23.4 %
0, 2, 3 2 1.8 % 25.2 %
0, 3 4 3.6 % 28.8 %
1 18 16.2 % 45.0 %
1, 2 17 15.3 % 60.4 %
1, 2, 3 5 4.5 % 64.9 %
1, 3 7 6.3 % 71.2 %

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2 7 6.3 % 77.5 %
2, 3 14 12.6 % 90.1 %
3 11 9.9 % 100.0 %

0 = To save for retirement

1 = To grow wealth over the long-term
2 = To earn income through dividends and interest
3 = To speculate and make short-term gains

Above graph and data table interpret the primary reason for investing and many respondents
primary reason is to grow wealth over long-term period, 56(62.2%) respondents selected income
from dividends, 50(45%) respondents primary reason is to speculate and make short term gains
whilst only 32(28.8%) respondents also selected to save for retirement because majority
respondents are from 18-25 age segment.

12. HOW DO YOU USUALLY MAKE INVESTMENT DECISIONS?

Frequencies of How do you usually make investment decisions?

Levels Counts % of Total Cumulative %

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0 22 19.8 % 19.8 %
0, 1 17 15.3 % 35.1 %
0, 1, 2 8 7.2 % 42.3 %
0, 1, 2, 3 3 2.7 % 45.0 %
0, 1, 3 1 0.9 % 45.9 %
0, 2 6 5.4 % 51.4 %
0, 3 1 0.9 % 52.3 %
1 14 12.6 % 64.9 %
1, 2 11 9.9 % 74.8 %
1, 2, 3 2 1.8 % 76.6 %
1, 3 11 9.9 % 86.5 %
2 2 1.8 % 88.3 %
2, 3 9 8.1 % 96.4 %
3 4 3.6 % 100.0 %

0 = Based on research and analysis of company financials

1 = Based on recommendations from financial advisors or friends/family
2 = Based on gut instinct or intuition
3 = Based on social media trends or online forums

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From above graph and data table Based on recommendations from financial advisors or
friends/family option selected by 67(60.4%) respondents, Based on research and analysis of
company financials option also selected by 58(52.3%) respondents, while 41(36.9%) respondents
selected Based on gut instinct or intuition option. Only 31(27.9%) respondents selected Based on
social media trends or online forums option.

13. MARKET VOLATILITY OR PRICE CHANGES

Frequencies of How do you react to sudden market volatility or price changes?

Levels Counts % of Total Cumulative %

Stay calm and 47 42.3 % 42.3 %
hold onto
investments
Sell investments 25 22.5 % 64.9 %
to avoid losses
Buy more 28 25.2 % 90.1 %
investments to
take advantage of
lower prices
Unsure 11 9.9 % 100.0 %

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Above chart and data table shows that when market volatility and price changes occurs 47(42.3%)
respondents prefer to stay calm and hold onto investments, 28(25.2%) respondents prefer to buy
more investments to take advantage of lower prices, 25(22.5%) respondents prefer to sell
investments to avoid losses where 11(9.9%) respondents don’t have idea means they are unsure
about market volatility and price change.

14. "HOT TIP" OR RUMOR

Frequencies of Have you ever invested in a stock based on a "hot tip" or rumor?

Levels Counts % of Total Cumulative %

YES 65 58.6 % 58.6 %

NO 46 41.4 % 100.0 %

Above chart and data table describes that 65(58.6%) respondents invested in stock based on Hot
tip or rumor whilst 46(41.4%) respondents have not invested in a stock merely on hot tip or rumor.
They are more into fundamental analysis or think rationally.

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15. RISK TOLERANCE
Frequency of How much risk are you willing to take when making investment
decisions?

Levels Counts % of Total Cumulative %

Very little, prefer low- 29 26.1 % 26.1 %
risk investments
Some, willing to take 56 50.5 % 76.6 %
moderate risks
High, willing to take 26 23.4 % 100.0 %
aggressive risks for
potential high returns

Above chart and data table interpret that 56(50.5%) investors willing to take moderate risk where
29(26.1%) investors willing to take low risk investment and not so very few 26(23.4%) investors
willing to take high or aggressive risk for high return. They have high risk appetite.

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16. INVESTMENT CONCEPTS AND TERMINOLOGY
Frequencies of Do you think you have a good understanding of investment concepts and
terminology?
Levels Counts % of Total Cumulative %
Yes, very confident 34 30.6 % 30.6 %
Somewhat, but could use 51 45.9 % 76.6 %
more education
No, need more education 26 23.4 % 100.0 %
and understanding

Above chart and data interpret that 51(45.9%) respondent’s investors have good understanding but
believe that they could use more education, where 34(30.6%) respondent investors are very
confident about their investment understanding which shows overconfidence bias whilst
26(23.4%) respondent investors think they have no good understanding on investment and think
they need more education and understanding regarding investment decision.

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17. HANDLE LOSSES IN YOUR INVESTMENT PORTFOLIO

Frequencies of How do you handle losses in your investment portfolio?

Levels Counts % of Total Cumulative %

Accept it as part of 51 45.9 % 45.9 %
investing and hold
onto investments

Sell investments to 34 30.6 % 76.6 %

avoid further
losses

Buy other 26 23.4 % 100.0 %

company/industry
stocks to balance
the loss

Above chart and data table interpret that 51(45.9%) investor respondents accept losses as part of
investing and hold that investment where 34(30.6%) investor respondent sell loss making
investment to avoid further losses whilst 26(23.4%) respondents buy other scrips so they can
balance their portfolio.

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18. INVESTMENT DECISION BASED ON EMOTIONS OR PERSONAL
BIASES
Frequencies of Have you ever made an investment decision based on emotions or personal
biases?

Levels Counts % of Total Cumulative %

Yes 65 59.6 % 59.6 %

No 44 40.4 % 100.0 %

Above chart and data table interpret that majority investor respondent’s decision based on
emotional or personal biases. 65(59.6%) respondents selected yes option whilst 44(40.4%)
respondents don’t take investment decision based on emotional or personal biases.

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5.2 CROSS TABULATION
Bi-Variant Analysis

1. WHEN IT COMES TO DECISIONS RELATED TO INVESTMENTS, YOU

RELY MORE ON YOUR INTUTIONS AND GUT FELLINGS* GENDER

Cross tabulation
Count

When it comes to
decisions related to
investments, you rely Gender
more on your
intuitions and gut
feelings? Female Male Grand Total

No 10 24 34

Yes 41 36 77

Grand Total 51 60 111

Out of total respondents, 78.4% of female and 60% male rely on their intuition and gut feeling
while making investment decision.

The comparison was made with gender and emotional bias. So it can be said that female rely
more on their intuition and gut feeling while making investment decision. Female gender is more
prone to emotional bias as compared to males.

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2. DO YOU THINK THAT YOU HAVE A SUFFICIENT KNOWLEDGE ABOUT
IT? * EDUCATION

Cross tabulation
Count

Do you think
that you have
Education
a sufficient
knowledge
about Under Post Grand
it? Graduate Graduate Graduate Professional PHD Total

No 7 15 19 4 45

Yes 4 19 37 4 2 66

Grand Total 11 34 56 8 2 111

Out of total respondents, 36.4% of under graduate, 55.88% of graduate, 66.07% of post graduate
and 50% of professional, 100% PhD think that they have the sufficient knowledge about investing.

The level of education and the overconfidence bias was compared here to check whether there
is any relationship between education level and overconfidence.

It shows that the Post graduate people are the people with the highest level of overconfidence bias
and it can be said that people who are educated has more overconfidence bias to predict the market
compared to people who are less educated.

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3. SUPPOSE YOU HAVE BOUGHT THE SHARES OF ABC LTD, THEN WILL
YOU GIVE MORE IMPORTANCE TO THE POSITIVE NEWS RELATED WITH
ABC LTD. * AGE

Cross tabulation
Count

Suppose you have

bought the shares
of ABC Ltd, then
will you give more Age
importance to the
positive news
related with ABC
Ltd? 18-25 25-35 35-45 >45 Grand Total

No 7 12 4 1 24

Yes 50 29 6 2 87

Grand Total 57 41 10 3 111

Out of total respondents, 87.72% of people of the age 18-25, 70.73% of people of the age 25-35,
60% of people of the age 35-45, 66.67% of people of the age more than 45, give more importance
to the positive news related to their investments.

Here relationship between conformation bias and age was studied and it was concluded that there
is no relationship between conformation bias and age of the investors. Because every age segment
investor is willing to get more positive news of invested company. Conformation bias can occur
to any investors irrelevance of age.

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4. IF YOUR INVESTMENT IS SHOWING LOSS, WILL YOU HOLD IT FOR
RECOVERING THE LOSS? * OCCUPATION

Cross tabulation
Count

If your Occupation
investment is
showing loss,
will you hold it
for recovering Self Home Grand
the loss? Student Service employed Business maker Total
No 10 17 8 12 4 51
Yes 17 21 11 10 1 60

Grand Total 27 38 19 22 5 111

Out of total respondents, 62.96% of student, 55.26% of service, 57.89% of self-employed , 45.45%
of business and 20% of home makers will hold their loss showing investment to recover the losses.
Here the relationship between the trying to break even effect and occupation is studied. It can be
analyzed that student and self-employed people are most affected by trying to break even effect
and home maker people are will not hold in the fear of losing more money. Students and self-
employed people are the people who take higher risk than other occupations.

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5.3 CHI-SQUARE TEST

(1). Chi-square test is done between Gender and Experience

How much experience do you have with investing?

Gender Beginner Intermediate Advanced Total

(less than 1 year) (1-3 years) (more than 3 years)

Male 24 25 11 60

Female 28 17 6 51

Total 52 42 17 111

χ² Tests

Value df p

χ² 2.59 2 0.274
N 111

H0 = There is no relationship between gender and years of experience

H1 = There is relationship between gender and years of experience

Here the p value in chi-square test is 0.274, thus p < 0.05. So null hypothesis H0 is failed to reject.
And we can say that There is no relationship between gender and years of experience.

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(2). Chi-square test is done between Gender and handle losses

How do you handle losses in your investment portfolio?

Gender 0 1 2 Total

Male 29 20 11 60
Female 22 14 15 51

Total 51 34 26 111

0 = Accept it as a part of investing and hold onto investment

1 = Sell investment to avoid further losses

2 = Buy other company/industry stocks to balance the loss

χ² Tests

Value df p

χ² 1.92 2 0.083
N 111

H0 = There is no relationship between gender and handle of losses

H1 = There is relationship between gender and handle of losses

Here the p value in chi-square test is 0.083, thus p > 0.05. So null hypothesis H0 is rejected. And
we can say that There is relationship between gender and handle of losses.

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(3). Chi-square test is done between Age and handle losses

How do you handle losses in your investment portfolio?

Age 0 1 2 Total

18-25 28 20 9 57
25-35 19 10 12 41
35-45 3 3 4 10
>45 1 1 1 3
Total 51 34 26 111

0 = Accept it as a part of investing and hold onto investment

1 = Sell investment to avoid further losses

2 = Buy other company/industry stocks to balance the loss

χ² Tests

Value Df p

χ² 5.00 6 0.544
N 111

H0 = There is no relationship between Age and handle of losses

H1 = There is relationship between Age and handle of losses

Here the p value in chi-square test is 0.544, thus p > 0.05. So null hypothesis H0 is rejected. And
we can say that there is relationship between Age and handle of losses.

46 | P a g e
(4). Chi-square test is done between Education and understanding of investment

Do you think you have a good understanding of investment concepts and

terminology?

Education Yes Somewhat No Total

Under 6 2 3 11
graduation
graduation 8 16 10 34
Post-graduation 16 29 11 56
professional 3 3 2 8
PhD 1 1 0 2
Total 34 51 26 111

χ² Tests

Value Df p

χ² 6.87 8 0.051
N 111

H0 = There is no relationship between education and understanding of investment

H1 = There is relationship between education and understanding of investment

Here the p value in chi-square test is 0.051, thus p > 0.05. So null hypothesis H0 is rejected. And
we can say that there is relationship between education and understanding of investment.

47 | P a g e
(5). Chi-square test is done between Age and Risk tolerance

How much risk are you willing to take when making investment decisions?

Age Little Moderate High Total

15-25 17 29 11 57
25-35 11 22 8 41
35-45 0 5 5 10
>45 1 0 2 3
Total 29 56 26 111

χ² Tests

Value Df p

χ² 10.7 6 0.099
N 111

H0 = There is no relationship between Age and Risk tolerance

H1 = There is relationship between Age and Risk tolerance

Here the p value in chi-square test is 0.099, thus p > 0.05. So null hypothesis H0 is rejected. And
we can say that there is relationship between Age and Risk tolerance.

48 | P a g e
 CHAPTER: 6

FINDINGS AND CONCLUSION

6.1 GENERAL FINDINGS

The questionnaire was administered to seek the response of 111 individual investors in Surat city.
The sample comprised of 54.1% males and 45.9% females. In terms of the age of respondents,
most of them were between the ages of 18-25 i.e. 51.4% of the respondents. As regards to the
qualifications 30.6% of the respondents’ attained Graduation level of education whereas 50.5%
attended Post- Graduation level of education. Among the respondents’ there were around 7.2%
respondents’ who have attained Professional Qualifications. This translates into a positive
relationship between the level of education and investment decisions.

According to research findings major respondents is in service sector i.e. 32.2% of the respondents
and 23.4% respondents are students of Department of Business and Industrial Management and
other colleges. Least respondents i.e. 4.5% are home maker. Majority respondents are falling into
21,000 to 30,000 income segment whilst there is a draw between below 10,000 and 31,000 to
40,000. 59.5% respondents think that they have sufficient knowledge on investment decisions and
no need of more knowledge that shows overconfidence bias of an investors.

when it comes to decisions related to investments, 69.4% respondents rely on Intuitions And
Gut Feelings rather than act being rational. Only 30.6% respondents don’t go with their gut
feelings and intuitions. Suppose you have bought the shares of abc ltd, then will you give more
importance to the positive news related with abc ltd.? In answer of this question 78.4%
respondents willing to get positive news about invested company that means they hear what
they want to hear. This shows Confirmation Bias of an investors.

54.1% respondents hold their investment despite of showing loss. And hold to the stock even
price of that stock is declining in hope that price will increase that shows Disposition Bias of
an investors. 46.8% respondents have less than 1 year of experience whilst 37.8% respondents

49 | P a g e
have Intermediate (1-3 years) experience in investing. According to study that means after covid-
19 more demat account has been opened. According to the study 62.2% respondent’s main
objective of an investment to grow wealth over the long-term whilst 45% respondent’s main
objective of an investment to speculate and make short-term gains. According to the study 64.4 %
respondents make investment decision based on recommendations from friends and family or
make decision based on herd mentality which shows investor’s Herd Mentality Bias. 42.3%
respondents Stay calm and hold onto investments when price volatility occurs and 25.2%
respondents buy more investments to take advantage of lower prices. 58.6% respondents invested
in a stock or based on a "hot tip" or rumor which shows Herd Mentality Bias of an investors.
According to the study 59.6% respondents made an investment decision based on emotions or
personal biases that describes Emotions Bias of an investors.

Out of total respondents, 78.4% of female and 60% male rely on their intuition and gut feeling
while making investment decision. The comparison was made with gender and emotional bias.
So it can be said that female rely more on their intuition and gut feeling while making investment
decision. Female gender is more prone to emotional bias as compared to males. Out of total
respondents, 87.72% of people of the age 18-25, 70.73% of people of the age 25-35, 60% of people
of the age 35-45, 66.67% of people of the age more than 45, give more importance to the positive
news related to their investments.
Here relationship between conformation bias and age was studied and it was concluded that there
is no relationship between conformation bias and age of the investors. Because every age segment
investor is willing to get more positive news of invested company. Conformation bias can occur
to any investors irrelevance of age.

Out of total respondents, 36.4% of under graduate, 55.88% of graduate, 66.07% of post graduate
and 50% of professional, 100% PhD think that they have the sufficient knowledge about investing.

The level of education and the overconfidence bias was compared here to check whether there
is any relationship between education level and overconfidence.

It shows that the Post graduate people are the people with the highest level of overconfidence bias
and it can be said that people who are educated has more overconfidence bias to predict the market
compared to people who are less educated. 62.96% of student, 55.26% of service, 57.89% of self-
employed , 45.45% of business and 20% of home makers will hold their loss showing investment

50 | P a g e
to recover the losses.
Here the relationship between the trying to break even effect and occupation is studied. It can be
analyzed that student and self-employed people are most affected by trying to break even effect
and home maker people are will not hold in the fear of losing more money. Students and self-
employed people are the people who take higher risk than other occupations.

So, according to the study’s objective more investors are Intuitive rather than Rational and
according to data analysis there is significant relationship between behavioral biases and
investment decisions.

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6.2 CONCLUSION

One word, which has dominated the world of financial stock markets since 2008, has been
Volatility. Extreme movements in global indices and stock prices because of fear and anticipation
has, as it is supposed to, made life tough for a rational investor. Market sentiments have been
observed to sway wildly from positive to negative and back, in the shortest timeframes like weeks,
days and hours. In this context, understanding irrational investor behavior deserves more
importance that it has ever had. Behavioral finance - a relatively new field that came into relevance
in the 1980s – studies the effect of psychology on financial decision-making. It studies how
investors interpret new information and act on it to make decisions under uncertainty.

Are people (market participants) rational? Or are they likely to be driven by emotions like fear and
greed, which could lead to bad decisions? The objective of this thesis was to check if the average
individual investor participating in the Indian Stock Market is rational at all times. The focus is on
seven identified behavioral biases, namely: Overconfidence, Herding, Confirmation, loss
Aversion, Disposition, Familiarity, and Anchoring. And Effects of these factors on the decision
making process.

This study’s hypothesis is

H0 = There is no influence of behavioral biases on investment decisions

H1 = There is influence of behavioral biases on investment decisions

And according to the analysis of the study conclusion shows that null hypothesis is
rejected and there is influence of behavioral biases on investment decision-making.

Effects of the above biases on the decision making process of the investors of the
Surat city was studied and analyzed. Data collection was done through
questionnaire and 111 responses were obtained from individual investors.
The study found out that investors are not rational and there is always the effects of
above biases in more or less proportion on the decision making process of investors
in the investments.

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 BIBLIOGRAPHY

Bibliography
Agarwal, A. (2022, October 13). FME Article. Retrieved from Traditional vs Behavioral
Finance: Simplified Guide: https://fmearticles.com/traditional-vs-behavioral-finance-the-
key-
differences/#:~:text=In%20simple%20terms%2C%20the%20difference%20between%20t
raditional%20finance,based%20on%20emotional%20factors%20rather%20than%20pure
%20data

Dr Vinay Kandpal, R. M. (2018). Role of behavioral finance in investment decisions - A study of

investment behavior in india. ResearchGate.

Lewis, R. (2022, August 16). INSIDER PERSONAL FINANCE. Retrieved from 5 common
behavioral biases and how they lead investors to make bad decisions:
https://www.businessinsider.com/personal-finance/behavioral-biases?IR=T

McClure, B. (2022, January 26). An Introduction to Behavioral Finance. Retrieved from

investopedia: https://www.investopedia.com/articles/02/112502.asp

P. Veni, R. K. (2020). EVOLUTION OF BEHAVIORAL FINANCE. JSDR | Volume 5, Issue 3,

209-215.

PASHTOON, R. (March, 2016). Portfolio Investment Decisions. Sodhganga.

Ramona Birau, S. C. (2021). Evaluating the linkage between Behavioural Finance and
investment decisions amongst Indian Gen Z investors . ResearchGate.

Seth, V. (2020). Effect of Behavioural Biases. The Management Quest, 43-64.

Staney, M. (2023, January 4). Rational Investing in An Age of Uncertainity. Retrieved from
Morgan Staney: https://www.morganstanley.com/articles/behavioral-finance

Team, C. (2023, March 19). Loss Aversion. Retrieved from corporatefinanceinstitute:

https://corporatefinanceinstitute.com/resources/capital-markets/loss-aversion/

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Upadhyay, P. (2019). A STUDY ON BEHAVIORAL FINANCE IN INVESTMENT
DECISIONS OF INVESTORS ON AHMEDABAD. 2019 IJNRD | Volume 4, Issue 7
July 2019 | ISSN: 2456-4184, 103-114.

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 ANNEXURE

Questionnaire:

Name :
Gender : Male Female

Age

18-25
25-35
35-45
>45

Education
Under Graduate
Graduate
Post Graduate
Professional
PhD

Occupation

Student
Business
Service
Self employed
Home maker

Income
below 10000
10000 to 20000
21000 to 30000

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31000 to 40000
> 40000

Do you think that you have sufficient knowledge about it?

Yes
No

When it comes to decisions related to investments, you rely more on your

intuitions and gut feelings?

Yes
No

Suppose you have bought the shares of abc ltd, then will you give more
importance to the positive news related with abc ltd.?

Yes
No

If your investment is showing loss, will you hold it for recovering the loss?

Yes
No

How much experience do you have with investing?

Beginner (less than 1 year)

Intermediate (1-3 years)
Advanced (more than 3 years)

What is your primary reason for investing?

To save for retirement

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To grow wealth over the long-term
To earn income through dividends and interest
To speculate and make short-term gains

How do you usually make investment decisions?

Based on research and analysis of company financials

Based on recommendations from financial advisors or friends/family
Based on gut instinct or intuition
Based on social media trends or online forums

How do you react to sudden market volatility or price changes?

Stay calm and hold onto investments

Sell investments to avoid losses
Buy more investments to take advantage of lower prices
Unsure

Have you ever invested in a stock or asset based on a "hot tip" or rumor?

Yes
No

How much risk are you willing to take when making investment decisions?

Very little, prefer low-risk investments

Some, willing to take moderate risks
High, willing to take aggressive risks for potential high returns

Do you think you have a good understanding of investment concepts and terminology?

Yes, very confident

Somewhat, but could use more education
No, need more education and understanding

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How do you handle losses in your investment portfolio?

Accept it as part of investing and hold onto investments

Sell investments to avoid further losses
Buy other company/industry stocks to balance the loss

Do you believe that social and environmental factors should play a role in investment decisions?

Yes, I prioritize investments that align with my values

Somewhat, but ultimately prioritize financial returns
No, financial returns are the only priority

Have you ever made an investment decision based on emotions or personal biases?

Yes
No

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