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Heuristic and Biases Related to Financial Investment and the Role of Behavioral Finance in Investment Decisions – A Study

Decision-making is a versatile action. Decisions cannot be made in an annulled by relying on the personal resources and complex models, which do not take into consideration the situations. A situation based on decision-making activity encompasses not only the explicit dilemma faced by the individual but also drag out to the environment. The most decisive challenge faced by the investors is in the vicinity of investment decisions. In designing the investment portfolio, the investors should consider their financial and investment goals, risk forbearance level, and other constraints. In addition to that, they have to envisage the output return-risk optimization. This process is better suited for institutional investors; it often fails for individuals, who are vulnerable to heuristic and behavioural biases. The presence of frequently occurring anomalies in conventional economic theory was a big contributor to the configuration of behavioral finance. These ostensible anomalies, and their unrelenting subsistence, directly infringe modern financial and economic theories, which assume rational and logical behaviour. Such a decision-maker would consider all relevant information and come up with the best choice under the situations in a progression known as constrained optimization. The present paper spotlights on Heuristic and Biases Related to Financial Investment and the Role of Behavioural Finance in Investment.