http://ijfr.sciedupress.com International Journal of Financial Research Vol. 10, No. 4; 2019 Published by Sciedu Press 55 ISSN 1923-4023 E-ISSN 1923-4031 An Analysis of Behavioral Biases in Investment Decision-Making Geetika Madaan 1 & Sanjeet Singh 1 1 Chandigarh University, Mohali, Punjab, India Correspondence: Geetika Madaan, Research Scholar, Chandigarh University, Mohali, Punjab, India. Received: May 31, 2019 Accepted: June 25, 2019 Online Published: June 26, 2019 doi:10.5430/ijfr.v10n4p55 URL: https://doi.org/10.5430/ijfr.v10n4p55 Abstract Individual investor’s behavior is extensively influenced by various biases that highlighted in the growing discipline of behavior finance. Therefore, this study is also one of another effort to assess the impact of behavioral biases in investment decision-making in National Stock Exchange. A questionnaire is designed and through survey responses collected from 243 investors. The present research has applied inferential statistics and descriptive statistics. In the existing study, four behavioral biases have been reviewed namely, overconfidence, anchoring, disposition effect and herding behavior. The results show that overconfidence and herding bias have significant positive impact on investment decision. Overall results conclude that individual investors have limited knowledge and more prone towards making psychological errors. The findings of the study also indicate the existence of these four behavioral biases on individual investment decisions. This study will be helpful to financial intermediaries to advice their clients. Further, study can be elaborated to study other behavioral biases on investment decisions. Keywords: behavioral biases, anchoring, disposition effect, overconfidence and individual investors 1. Introduction The theory of rationality based on two assumptions, which are- "A rule of rationality" and "an act of rationality." In the situation of a rule of rationality, an individual adopts the mode of behavior that maximizes the expected utility whereas in case of an act of rationality investor chooses to act in such way that yields maximum utility. Investors make choices that maximize the benefits and minimize the cost (Ahmad Zamri, Ibrahim, Haslindar, Tuyon, 2017). Evidence and explanation proposed in the theory of bounded rationality explain that individuals are not always able to obtain all the relevant information, which is required to make possible decisions (Kinoshita, Suzuki, & Shimokawa, 2013). Bounded rationality comprehensively concerned with the manner actual decision-making process impact the decisions that arrived (Kinoshita et al., 2013); (Ahmad Zamri, Ibrahim, Haslindar, Tuyon, 2017). People are either partly rational or irrational in their decisions. This theory showed that individuals have biases and cognitive limitations, which forbid them from achieving full rationality at the time of decision-making (Ahmad Zamri, Ibrahim, Haslindar, Tuyon, 2017). When it comes to individual investment decision making, it is essential to consider that a certain degree of uncertainty and risk is associated with each investment decision choice (Paul Slovic, 1972). There is sufficient evidence, point out that due to the occurrence of market anomalies, markets react differently compared to the behavior of a rational man. Various cognitive biases often prevent individuals from rational thought. Individuals endowed with rationality that allows them to consider all the available information. From this, they develop unbiased forecasts about happening of future events, which allow them to make the best financial decisions (Fama, 1970); (Michael C. Jensen, 1978). The foundation base of traditional finance is efficient market hypothesis. As per this hypothesis, investors have access to market information and prices of assets and also investors considered to be rational. Even though the discipline of modern finance has grown progressively, it is still difficult to explain on the scientific grounds that why people behave non- rationally while dealing in money. While traditional finance assumes people rationalize and enhance their financial decisions, behavior finance includes the relevance of what investors should do and blend the basics of traditional finance with what people do in terms of their investment decisions (Mitroi, Adrian Stancu, 2014). The domains of Psychology and sociology are considered to be imperative accelerators within the field of study of Behavioral Finance (Robert J. Shiller, 1997). In contradiction to the efficient market hypothesis, many studies have indicated behavioral biases in investors (Musciotto, Marotta, Piilo, & Mantegna, 2018). The behavioral finance approach replaces the traditional rationality hypothesis and asserting that behavioral biases influence individuals.