In earlier research, it has been discovered that contrary to the assumptions and theories of conventional finance, many irrational behaviors related to investment judgment occur in real life. In this paper, we have made an extensive review of various behavioral biases that affect investment decision making of the individual investors. Extant research indicates that individual investor makes his/her investment decision under the influence of some combination of behavioral biases, which mainly include disposition effect, mental accounting, investors’ overconfidence, representativeness, narrow framing, aversion to ambiguity, anchoring, availability bias, and regret aversion. Under the influence of some such biases or combination of the same, individual investors often make irrational investment decisions. And therefore, individual investors, in aggregate, earn poor long-run returns. These aspects have been highlighted in this paper. Potential solutions to mitigate the adverse impact of behavioral biases on decision making of individual investors have also been discussed. Finally, future research direction relevant to such an area has been indicated in this paper.

Conventional finance theories are based on the assumptions that people act rationally and consider all available information in their decisions related to investments (Dedu et al., 2012). According to Somil (2007), principles of maximization, self-interest and consistent choice commonly underpin the rational economic factor. Over the last few decades, it has been discovered that contrary to the assumptions and theories of conventional finance, many irrational behaviors related to investment judgment occur in real life. The theory of rational investor has been opposed by neoclassical economic theory which proposes that every investor or every person has limited access to information and an individual is bounded by external constraints and one’s own behavior. In fact, individual investors make mental shortcuts in the process of investment decision making. According to Behavioral Finance (BF) approach, several psychological biases influence decision making of both individual investors and institutional investors.

Management Research Journal, Behavioral Biases, Decision Making, Second, Business Source Complete, Behavioral Biases, Individual Investors.