Behavioural Biases and Financial Literacy as a Moderator of Investment Decision-Making Among Retail Investors in Uttar Pradesh

Abstract

When making investment decisions, retail investors take into account behavioural and psychological factors in addition to market and financial data. With emphasis on the moderating influence of financial literacy, the present research investigates how four major behavioral biases—overconfidence, anchoring, herding, and loss aversion—affect retail investors' decision-making when making investments. Based on primary data gathered using a structured questionnaire, the study uses a descriptive and quantitative research methodology. Analysis of Variance (ANOVA) is employed to examine the suggested relationships in a sample of 330 respondents. The results show that investing decision-making is significantly impacted by all four behavioral biases. Investment decision-making is statistically significantly correlated with overconfidence, anchoring, herding, and loss aversion biases. Additionally, the study demonstrates that the association between behavioural biases and investing decision-making is considerably moderated by financial literacy. Additionally, it has been discovered that increased financial literacy reduces the impact of behavioural biases on investment choices. The results demonstrate that financially literate investors are better equipped for identifying and controlling psychological biases and make more informed, logical investment decisions. By emphasizing the significance of financial literacy in lowering bias-driven investing behavior among retail investors, the research adds to the body of knowledge on behavioural finance and has practical implications for financial educators, lawmakers, regulators, and investment advisors.