ItemBook Chapter

Behavioral Biases in Financial Markets: Understanding the Impact of Cognitive Heuristic-Driven Biases and Emotional Biases in Shaping Investment Decisions

Title
Behavioral Biases in Financial Markets: Understanding the Impact of Cognitive Heuristic-Driven Biases and Emotional Biases in Shaping Investment Decisions
Creator
Kalappa, Bharath; Upadhyay, Deepika
Description
Conventional finance theories believe that the stock market is organized and that stock valuations provide all relevant facts. On the other hand, behavioral finance theories argue that stock valuations can be affected by behavioral biases, explicitly cognitive heuristic-driven biases and emotional biases. The stock market displays the current wellness of an economy, and investment decisions represent it. Investors unveil irrational actions in their investment decision strategies. The investment decision strategy itself is a cognitive procedure, as stock investors must form decisions informed by several possibilities that are available to them. This chapter provides theoretical underpinnings and an overview of the effect of behavioral biases on investors investment decision-making. This research provides an in-depth insight into cognitive heuristic-driven biases (Illusion of Control, Hindsight, Conservatism, House Money Effect, Self-Attribution, Gamblers Fallacy, Confirmation, Recency, Familiarity, and Religiosity) and emotional biases (Disposition Effect, Loss Aversion, Regret Aversion, Risk Perception, and Mental Accounting) impact investment decisions. The implications of this study could be helpful for financial markets and institutions as well as practitioners, such as equity investors and traders, portfolio and asset managers, securities analysts, wealth advisors, money managers, securities bankers, and brokers. In addition, it benefits regulators, policymakers, academicians, and researchers. The overall chapter offers a positive impact between behavioral biases and investment decisions, with distinct themes from earlier research, and contributes to generalization. Copyright 2026 by Nova Science Publishers, Inc.
Source
Behavioral Finance: Strategies for Informed Decision-Making;pp.41-63
Date
01-01-2026
Publisher
Nova Science Publishers, Inc.
Subject
behavioral biases; behavioral finance; cognitive heuristic-driven biases; conventional finance; emotional biases; financial markets; investment decisions
Coverage
Kalappa B., Department of Commerce, School of Commerce, Finance and Accountancy, CHRIST (Deemed to be University), Bengaluru, Karnataka, India; Upadhyay D., Department of Commerce, School of Commerce, Finance and Accountancy, CHRIST (Deemed to be University), Bengaluru, Karnataka, India
Rights
Restricted Access; Hardcopy may be available in the library
Relation
ISBN: 979-890134017-2; 979-889530956-8;
Format
online
Language
English
Type
Book chapter

Citation

Kalappa, Bharath; Upadhyay, Deepika, “Behavioral Biases in Financial Markets: Understanding the Impact of Cognitive Heuristic-Driven Biases and Emotional Biases in Shaping Investment Decisions,” CHRIST (Deemed To Be University) Institutional Repository, accessed June 18, 2026, https://archives.christuniversity.in/items/show/25277.

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