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QRFM
16,3 A systematic review on behavioral
biases affecting individual
investment decisions
448 Sneha Badola
School of Management, IMS Unison University, Dehradun, India
Received 31 May 2022
Revised 10 December 2022 Aditya Kumar Sahu
10 June 2023
Accepted 7 August 2023 Department of Operations Management, IIM Rohtak, Rohtak, India, and
Amit Adlakha
School of Management, IMS Unison University, Dehradun, India

Abstract
Purpose – This study aims to systematically review various behavioral biases that impact an investor’s
decision-making process. The prime objective of this paper is to thematically explore the behavioral bias
literature and propose a comprehensive framework that can elucidate a more reasonable explanation of
changes in financial markets and investors’ behavior.
Design/methodology/approach – Systematic literature review (SLR) methodology is applied to a
portfolio of 71 peer-reviewed articles collected from different electronic databases between 2007 and 2021.
Content analysis of the extant literature is performed to identify the research themes and existing gaps in the
literature.
Findings – This research identifies publication trends of the behavioral biases literature and uncovers 24
different biases that impact individual investors’ decision-making. Through thematic analysis, an attribute–
consequence–impact framework is proposed that explains different biases leading to individual investors’
irrationality. The study further proposes directions for future research by applying the theory–characteristics–
context–methodology framework.
Research limitations/implications – The results of this research will help scholars and practitioners
in understanding the existence of various behavioral biases and assist them in identifying potential strategies
which can evade the negative effects of these biases. The findings will further help the financial service
providers to understand these biases and improve the landscape of financial services.
Originality/value – The essence of the current paper is the application of the SLR method on 24 biases in
the area of behavioral finance. To the best of the authors’ knowledge, this study is the first attempt of its kind
which provides a methodical and comprehensive compilation of both cognitive and emotional behavioral
biases that affect the individual investor’s decision-making.
Keywords Behavioral finance, Behavioral biases, Individual investor, Investment decision,
Systematic literature review, Decision-making
Paper type Literature review

1. Introduction
Emotions and feelings significantly influence investment decision-making (Dowling and
Lucey, 2017). According to the Forbes (2016) report, the biggest investment decision-making
Qualitative Research in Financial
Markets mistakes committed by investors are behavioral in nature. The primary reason for
Vol. 16 No. 3, 2024
pp. 448-476
complexities in the investment decision is due to the presence of varied emotions and
© Emerald Publishing Limited
1755-4179
behavioral patterns exhibited by the individual investors (Zahera and Bansal, 2018).
DOI 10.1108/QRFM-05-2022-0095 Individual investors not only perceive investments/stocks as a source of return but also
associate personal beliefs with it. Thus, investors’ irrationality in the form of recurring A systematic
patterns, illogical interpretation and inaccurate judgment is known as behavioral bias review
(Ahmad et al., 2017a, 2017b; Gill et al., 2018; Reynolds et al., 2021).
Behavioral biases have their origin in human psychology (Barber and Odean, 2013) often in
the form of systematic errors in judgment (Gill and Bajwa, 2018). A systematic error
corresponds to any inaccuracy which does not occur randomly but is introduced due to
inaccuracy of observation or measurement by the investors. Investors commit mistakes due to
these biases in their investment-related decisions (Sahi, 2017). They make unwanted, 449
nonoptimum choices when confronted with problematic and unclear decisions (Subrahmanyam,
2008). They tend to overestimate the growth prospects of companies (Cornell and Damodaran,
2020), and allow themselves to be driven by hopes and fears rather than facts.
Behavioral portfolio theory, expected utility theory and prospect theory provide
sufficient evidence that investors do not behave rationally while making investment
decisions (Rupande et al., 2019) and there exist anomalies. However, traditional finance
models built on the pillars of the portfolio construction principle (Markowitz, 1952),
arbitrage principles (Modigliani and Miller, 1958), capital pricing theory (Sharpe, 1964) and
option pricing theory (Black and Scholes, 1973) do not capture such anomalies.
Scholars like Woo et al. (2020) and Metawa et al. (2019) also mentioned that traditional
finance models which deal with time series analysis of prices, dividends and earnings fail to
capture the fluctuations occurring in the financial markets perfectly. Subsequently,
Strömbäck et al. (2017) emphasized the importance of psychological factors that play a role
in individual investors’ decision-making. The persistent reproach of traditional theories
necessitates the need to explore questions like:

Q1. Are financial markets really efficient?

Q2. Are investors rational or do they get swayed by their beliefs and emotions while
taking decisions that eventually lead to a bad or a partially optimal financial
decision?
Past investigation into these questions has led to the development of behavioral finance as a
specialized field of study (Yüksel and Temizel, 2020). Behavioral finance is defined as the
application of psychology to finance i.e. a field of study that examines the influence of
psychological variables on the performance of financial market players and its subsequent
consequences in the market (Dowling and Lucey, 2017; Sewell, 2010). It provides insight into
how emotions, hope, fear and well-being influence the way an investor behaves (Statman,
2017; Weinstein and Stone, 2018). Extant literature reflects significant scholarly
contributions toward the development of econometric models that incorporate behavioral
aspects of investments (Costa et al., 2019; Vogel, 2018).
Although both individual and institutional investors get affected by a variety of
behavioral biases that can be primarily grouped into two broad categories; cognitive and
emotional (Baker et al., 2017; Pompian and Wood, 2006), individual investors differ from
institutional investors (Talwar et al., 2021). They are affected by various irrational
factors and are highly prone to risk and volatility in the stock market (Seth et al., 2020).
Moreover, they are extremely influenced by their emotions which makes them biased in
their investment decisions (Nofsinger, 2017). Trading more in riskier securities compared
to institutional investors, they demonstrate over-confidence (Chuang and Susmel, 2011)
and exaggerate their ability to control events. Consequently, if individual investors incur
loss while investing, they remain emotionally stuck with the greater feeling of loss
(Waweru et al., 2008).
QRFM While a significant amount of research has been conducted on behavioral biases, prior
16,3 literature is extremely scattered. Studies that holistically examine the applicability of these
biases regarding individual investment decisions are extremely limited. For instance, Kumar
and Goyal (2015) examined only four biases, namely, herding bias, home bias, overconfidence
bias and disposition effect bias. Aren et al. (2016) limited the scope of the study by examining
behavioral biases with respect to institutional investors. Hence, it becomes imperative to
450 study the effect of behavioral biases on individual investors. Shukla et al. (2020) limited their
research to emerging economies. Zahera and Bansal (2018) studied 17 biases but did not
segregate the biases as cognitive and emotional. Therefore, it is worthwhile to understand
these biases, their origin and examine their impact on the investment decision-making
process of investors to develop a comprehensive understanding of the field.
The above discussion calls for the research to examine these biases in the context of
individual investors. Accordingly, the present study responds to this need by performing
systematic literature review (SLR). Through SLR, the following question is addressed:

RQ. What are the existing research themes in the context of behavioral biases that affect
individual investors?
The main motives for conducting SLR in the current study are twofold. First, it focuses on
quantitative as well as qualitative synthesis of the extant literature (Massaro et al., 2016).
Second, it presents a detailed approach that aims at minimizing bias through exhaustive
literature searches of publications and provides an audit trail of the reviewer’s decision,
procedures and conclusion (Boell and Cecez-Kecmanovic, 2015). We believe, conducting SLR
on different behavioral biases that exist among individual investors will help to analyze
their impact on investment decision-making. The remaining part of the article is structured
as follows: Section 2 discusses the review methodology. The finding of the study has been
presented in Section 3. The discussion regarding gaps and future research directions is
presented in Section 4. Lastly, the conclusion, theoretical implications and practical
implications of the study are presented in Section 5.

2. Review methodology
A six-step procedure suggested by Durach et al. (2017) is adopted for conducting SLR. These
six steps are:
Step 1 – Outline the research questions. In this step, the need and contribution of SLR on
behavioral biases that affect individual investors are highlighted through the research
question.
Step 2 – Determining the required attributes to be present in the published studies on
which the SLR will be conducted. This involves setting up the article’s inclusion and
exclusion criteria. All articles investigating the impact of behavioral biases on individual
investors published between the year 2007 and 2021 are considered for this research. Also,
only peer-reviewed journals publishing in the English language were preferred as it is
the foremost method of communication among researchers. Textbooks, dissertations,
conference papers and unpublished working papers were excluded from SLR.
Step 3 – Retrieve the sample from various databases through a planned and systematic
search. In this step, the keywords search was done using the combination of keywords
“behavioral/behavioural finance,” “behavioral/behavioural bias,” “individual investors” and
“investment decision.” The databases chosen for the article search are Scopus, Science
Direct, Ebsco Emerald Insight, Taylor and Francis, Sage and Springer. Scopus was wisely
chosen as first database for extracting research papers because it contains around 95% of
the peer-reviewed articles from the business, management, finance and accounting field
(de Oliveira et al., 2018). At a later phase, other databases were explored in a sequential style to A systematic
identify articles that were missed (i.e. articles other than the ones explored through Scopus). review
Step 4 – Choosing the relevant literature. This involves sampling all the relevant studies
beyond the articles obtained through keyword searches and excluding irrelevant ones. The
first phase involves manual screening of each article obtained through keyword search and
removing the ones not associated with behavioral biases among individual investors. The
second phase involves the inclusion of articles through forward and backward referencing.
In the first phase, out of 222 articles, 66 were shortlisted. In phase two, another set of five 451
articles (Alrabadi et al., 2018; Abreu and Mendes, 2018; Bashir et al., 2013; Mushinada and
Veluri, 2020; Prosad et al., 2015) was shortlisted. Thus, a total of 71 articles were attained for
the final analysis.
Step 5 – Integrating the literature. To initiate the process, 71 shortlisted articles were
coded on the basis of general information like the title of the paper, author name(s), the title
of the journal, year of article publication, volume number of article, abstract and references
and specific information like research design and context. Thereafter, findings from 71
shortlisted articles are examined and compiled. To serve this purpose, content analysis has
been methodically performed for all 71 studies. Content analysis helps to present the data in
the form of empirical conclusions (Kuckartz, 2019). It allows the researchers to identify
theoretical themes by classifying words and phrases conveying similar meanings into
smaller content categories from a large pool of articles. Thus, enhancing the understanding
of extant literature. It is conducted in three phases: preparation, organizing and reporting.
Phase 1, i.e. the preparation step deals with organizing the qualitative data through open
coding, establishing categories and abstraction (Bengtsson, 2016). It begins with a detailed
reading of the subject area and topic, i.e. the area of behavioral finance and behavioral biases
affecting individual investors. Each of the 71 shortlisted articles was studied in detail to
understand the different themes that could be defined from these articles. Open coding was
used, which is a phase where notes and headings are recorded in the text to explain all the
characteristics of the content. The coding for all the articles was done based on the themes
each paper catered to and other details required for categorizing the literature. After open
coding, the lists of categories are assembled under different headings. Behavioral bias as a
research area is contemporary and abstraction helps to form a general description of the
research topic through the creation of categories. It was observed that different research
articles had many similarities like the biases studied, countries targeted, key terms, type of
research model or the research objectives achieved. Thus, the 71 articles were bifurcated
based on different themes such as the type of data used for the analysis, the type of biases
covered, demographic factors, the type of research methodology used, etc. While reading
these articles, the authors also made notes on the gaps and framework which need to be
developed on the basis of content analysis. Using the inductive method of content analysis,
interpretation was made which further assisted in drawing conclusions for all the 71 studies.
The abstraction process continued till all the different types of themes, and gaps from the
papers taken for the analysis could be extracted.
Step 6 – Recording the outcomes. This step includes the last phase of the content analysis
i.e. reporting. It presents a descriptive summary of the selected literature on behavioral
biases among individual investors in the investment decision-making process and further
discusses thematic findings.

3. Findings
Subsection 3.1 presents a comprehensive summary of the publication trends associated with
behavioral biases that affect individual investors. Thereafter, content analysis was
QRFM performed in Subsections 3.2 and 3.3 to identify research themes and develop a conceptual
16,3 framework to ascertain the scope for future research.

3.1 Publication trends

Figure 1 depicts the publication pattern of articles associated with behavioral bias over the
years. The figure suggests that the first article appeared in the year 2007 and the research
452 remained stagnant till 2018. The years 2019 and 2020 have witnessed maximum
publications in this field then comparatively reduced in the year 2021. This evolution of
articles suggests that behavioral bias literature is still in the early growth stage. The rising
count of scholarly contributions in the past four years demonstrates the increasing
awareness of the impact of behavioral biases on individual investors’ decision-making.
A total of 78 different authors have made scholarly contributions in this field. Figure 2
presents the contribution made by top authors who have published at least three articles on
behavioral bias in context to individual investors. Kumar S, Goyal N and Abreu M dominate
the list having authored four articles each. Mushinada V N C and Mendes V have
contributed three articles each. These findings can serve as a valuable resource for future
scholars as they can refer to these authors’ work and may collaborate with them for various
research works in the area.
Citation analysis was performed to establish the significance of an article to know the
strength of the relation between the articles. The top five significant research articles which
have established the shape of research in the domain of behavioral bias have been presented

Figure 1.
Year-wise publication
of articles

Figure 2.
Top contributing
authors
in Tables 1 and 2. The complete number of citations and citations per year i.e. average A systematic
citation (number of total citations of article divided by the total number of years from review
publication) were together applied as a part of the process to ascertain the most influential
articles. Citation per year was measured (Table 2) to rule out the possibility of higher
citations of an article merely because it was published earlier. Glaser and Weber (2007)
study “Overconfidence and trading volume” appears to be the most popular article in terms
of the number of citations. The subprime crisis of 2008 was an eye-opener for individual
investors when they realized the concept of behavioral finance. Over a period, this
453
phenomenon became prominent resulting in a high number of citations. In the case of
citations per year Baker et al. (2019) study “How financial literacy and demographic
variables relate to behavioral biases” is ranked first. This recently published study has
specifically studied the impact of age, gender, income level, occupation, education,
investment experience and marital status of individual investors leading to various
behavioral biases. This study further explores why and how these biases affect rationality
of investors while taking investment decisions. The citation analysis indicates the impact of
the published articles. The present analysis will help the early-stage scholars in referring to
the key literature in this field.
The 71 final shortlisted articles were published in 46 journals. This diversity of journals
clearly exhibits the interdisciplinary nature and application of behavioral bias in finance
literature. The results reveal that though research in the area of behavioral bias affecting
individual investors is sparse, it has extensive acceptability in noteworthy journals with
diverse aims and scope. Thus, making the investigation of the topic timely and important.
The present SLR also discovered the top journals that have significantly influenced the
literature on behavioral biases that affect individual investors (please see Figure 3). Pacific
Basin Finance Journal was found to be the most influential journal followed by Review of
Behavioral Finance. Scholars interested in working in this field can use this information for
publishing their own work.

Rank Authors Cited by (C)

1 Glaser and Weber (2007) 995

2 Barberis and Xiong (2012) 529
3 Linnainmaa (2010) 239
4 Goetzmann and Massa (2008) 197
Table 1.
5 Baker et al. (2019) 148 Most influential
articles: total
Source: Created by authors citations measures

Rank Authors (C/Yr)

1 Baker et al. (2019) 74

2 Glaser and Weber (2007) 71 Table 2.
3 Metawa et al. (2019) 63
4 Barberis and Xiong (2012) 59
Most influential
5 Madaan and Singh (2019) 32 articles: total
citations/year
Source: Created by authors measures
QRFM
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454

Figure 3.
Most influential
journals ( two
articles)

To develop deeper insights, it was crucial at understanding the contribution made by each
country toward the behavioral bias literature (articles by multiple authors from different
countries have been assigned to each country), as determined by their scientific production.
Following are the top productive countries publishing more than two articles: USA (n ¼ 15),
India (n ¼ 15), Pakistan (n ¼ 8), Taiwan (n ¼ 5), Turkey (n ¼ 4) and the UK
(n ¼ 4). A good number of research articles are contributed by the Asian countries alone,
namely, India, China, Pakistan, Turkey, Taiwan and Iran (refer to Figure 4). The probable
reason for this could be the increasing per capita income of investors and financial
information access through financial awareness campaigns and workshops. There are also
five joint collaborations between the countries in terms of publications. Such cross-country
publications are important for gaining richer insights on the phenomenon, for example, the
impact of behavioral biases arising due to culture and the type of nation i.e. developing
versus developed nation.

3.2 Research themes

3.2.1 Distribution of bias. The study makes a sincere attempt to cover all the biases studied
in the extant literature. As a part of content analysis, all the cognitive and emotional biases
studied in extant literature that exist among individual investors are discussed in Table 3. A
total of 24 biases were identified. Out of 24, 18 are cognitive biases, and 6 fall under the
category of emotional biases. A few biases mentioned in Table 3 were initially examined
outside the domain of finance before it had been studied in the field of behavioral finance. For
instance, self-attribution bias was first introduced by Bem (1967) but was studied in terms of
behavioral finance in 2000 by Gervais and Odean (Mittal, 2019). Similarly, the term hindsight
bias was introduced by Fischoff and Beyth (1975). However, Shiller investigated this bias in
the field of behavioral finance in the year 2000. Contrarily, a few biases like disposition bias
coined by Shefrin and Statman (1985) and overconfidence bias coined by Shefrin and Thaler
(2004), respectively, were originally studied in the field of behavioral finance.
The majority of published literature has cognitive biases constituting 59.15% of the total
studies (see Figure 5). Thus, showing that emotional biases have been given less attention
 A systematic
review

455

Figure 4.
Country-wise
representation of
publications ( two
articles)

by past researchers. However, studies conducted in or after 2019 have realized the gap and
started providing due emphasis to emotional biases.
3.2.2 Type of research designs. The SLR identified the research design adopted in 71
scholarly journal articles. Figure 6 shows the division of articles on the basis of research
design. 73.23% of articles in the literature are based on cross-sectional design, while the
remaining 26.27% adopted longitudinal study.
3.2.3 Statistical techniques used. Every article has its own style of analyzing results, for
this purpose, all 71 articles were summarized based on quantitative statistical techniques
adopted by past research. Structural equation modeling (28.16%), analytical techniques
(26.76%) and regression analysis (26.76%) are found to be primarily used in the previous
studies. The articles incorporating multiple techniques contribute remaining 18.32% of the
studies (see Figure 7).
3.2.4 Type of study and data. Analysis of the literature based on the type of research
study and data helps to identify the focus of past research. Research articles are further
classified on the basis of data as primary data and secondary data. Major studies to the
extent of 71.83% are conducted on primary data and the rest (28.17%) follows secondary
data (see Figure 8). A change in the pattern where primary data-based studies are conducted
has been found in the last five years. Therefore, there are better scopes to judge the
behavioral aspects of an investor for their financial decision-making skills based on primary
data. Our analysis shows that secondary data have been generally collected through
brokerage house firms and are longitudinal in nature. Figure 9 shows the classification of
research studies into four categories: empirical, descriptive, analytical and conceptual. In
empirical research, we have included studies based on observations or experiments, while in
 16,3

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Table 3.

extant literature
List of behavioral
biases studied in the
Behavioral bias examined
S. no. in the extant literature Definition Author (s)

1 Money illusion bias This bias occurs when the individual investor deviates from their Darriet et al. (2020); Stephens and Tyran (2016);
(Fisher, 1928) actual decision. It develops a tendency among investors to believe in Akerlof and Shiller (2010) Basak and Yan (2010)
terms of nominal monetary values rather than real monetary values
2 Confirmation bias It refers to the predetermined impression established amongst Hsu et al. (2021); Youssef et al. (2021); Rollwage et al.
(Dicken, 1960) investors that compels them to acquire or assess predominantly (2020); Alrabadi et al. (2018); Allahverdyan and
the information which is consistent with their pre-existing beliefs Galstyan (2014), Onsomu (2014); Bashir et al. (2013)
3 Self-attribution bias Self-attribution bias among individual investors is the tendency to Hsu et al. (2021), Mushinada (2020); Mushinada and
(Bem, 1967) attribute their financial achievements to their hard work and Veluri (2020), Mushinada and Veluri (2019); Baker
rational decisions et al. (2018), Singh et al. (2016); Mishra and Metilda
(2015)
4 Conservatism bias Conservatism bias is the tendency of individuals to stick to their Youssef et al. (2021); Rahim (2019); Zahera and
(Edwards, 1968) old opinions and reflecting slower acceptance toward any change Bansal (2018), Liu et al. (2010)
5 Gambler’s fallacy bias Gambler’s fallacy bias explains inaccurate understanding of Abreu (2019), Abreu and Mendes (2018);
(Kahneman and Tversky, occurrence of likelihoods. It refers to individual’s belief that even a Gubaydullina and Spiwoks (2015), Huber et al.
1972) smaller sample size would demonstrate all the qualities of the (2010); Rabin and Vayanos (2010)
main population
6 Representativeness bias Representativeness bias is a mental shortcut which individual Khan et al. (2021); Youssef et al. (2021); Raut et al.
(Kahneman and Tversky, investors take while doing probability assessment of an uncertain(2020); Alrabadi et al. (2018); Baker et al. (2018), Liu
1972) event et al. (2010); Tekçe et al. (2016); Irshad et al. (2016)
7 Anchoring bias It occurs when the investor’s decision is anchored around the past
Kartini and Nahda (2021); Raut et al. (2020); Madaan
(Kahneman and Tversky, information received and Singh (2019); Baker et al. (2018), Baker et al.
1974) (2017); Shah et al. (2018)
8 Hindsight bias It suggests that individual investors believe that they can Youssef et al. (2021); Welsh (2020), Baker et al.
(Fischhoff and Beyth, 1975) accurately predict an event even before it takes place (2018); Manuel and Mathew (2017)
9 Illusion of control bias Investors wrongly believe that they can regulate and create an Hsu et al. (2021); Youssef et al. (2021); Ullah (2015);
(Langer, 1975) impact over investment choices in the market. However, they have Riaz and Iqbal (2015); Bashir et al. (2013); Singh
no influence over any activity of financial markets Individual (2012); Shefrin (2002)
investors can be relieved of this bias through amicable market
situation. It is a prominent bias among shareholders
(continued)
 Behavioral bias examined
S. no. in the extant literature Definition Author (s)

10 Herding bias Herding bias is the tendency of the investors to imitate the Cao et al. (2021); Suresh (2021); Raut et al. (2020);
(Kahneman and Tversky, decisions of other investors Sumathy and Nabeel (2020); Areiqat et al. (2019);
1979) Shantha (2019); Alrabadi et al. (2018); Baker et al.
(2018), Baker et al. (2017); Kumar and Goyal (2016),
Kumar and Goyal (2015); Hayat and Anwar (2016);
Prosad et al. (2012)
11 Loss aversion bias It is a feeling of hopefulness among investors that losses can be (Gächter et al., 2021); Kartini and Nahda (2021);
(Kahneman and Tversky, avoided (Akinkoye and Bankole (2020); Areiqat et al. (2019);
1979) Ainia and Lutfi (2019); Alrabadi et al. (2018); Baker
et al. (2017)
12 Endowment bias Endowment bias suggests that losses are evaluated heavily and Armansyah (2021); Holden and Tilahun (2020);
(Thaler, 1980) are given more emphasis over wins Zahera and Bansal (2018)
13 Mental accounting bias Mental accounting bias implies the division of total investment Ahmad (2021); Baker et al. (2018), Sharma and Firoz
(Thaler, 1980) into various groups by the investors (2020); Duxbury et al. (2015); Shams et al. (2012)
14 Framing bias Framing bias suggests that individual investment decisions are Suresh (2021); (Fehrenbacher et al. (2018); Beratšova
(Kahneman and Tversky, made based on upon the framing of information et al. (2018; Hanafi (2018); Baker et al. (2017)
1981)
15 Regret aversion bias Regret aversion bias is a form of emotional bias where people try Akinkoye and Bankole (2020); Baker et al. (2018);
(Loomes and Sugden, 1982) to delay investment decisions bothering about a poor financial (Waweru et al., 2008)
outcome in the future
16 Disposition effect bias Disposition effect bias refers to investor’s inclination to dispose Ahmad (2021); Sharma and Firoz (2020); Madaan
(Shefrin and Statman, 1985) the winning stock and hold on to the loss-making stocks for longer and Singh (2019); Abreu (2019), Baker et al. (2018);
period Baker et al. (2017), Balkanska (2018); Tekçe et al.
(2016); Hayat and Anwar (2016); Kumar and Goyal
(2016), Kumar and Goyal (2015); Prosad et al. (2015);
Goetzmann and Massa (2008)
17 Status quo bias Investors do not want to change the structure of their portfolio or Filiz et al. (2018), Freiburg et al. (2013)
(Samuelson and Zeckhauser, change it marginally, resulting into existence of status quo bias
1988)
(continued)

Table 3.
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review
A systematic
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Table 3.
Behavioral bias examined
S. no. in the extant literature Definition Author (s)

18 House money bias House money bias is a situation where individuals become less Duxbury et al. (2015); Hsu and Chow (2013)
(Thaler and Johnson, 1990) averse toward losses and after earning higher profits, are willing
to take greater risk in future
19 Familiarity bias Familiarity bias takes place when investors have a preference Dong et al. (2021), Ardalan (2019), Chaudary (2019);
(French and Poterba, 1991) toward familiar (known) investment opportunities Baker et al. (2018), De Vries et al. (2017); Tekçe et al.
(2016); Zhdanov and Simonov (2021)
20 Home bias It is the sense of belongingness of the individual investors Kumar and Goyal (2015), Abreu et al. (2011); Feng
(French and Poterba, 1991) regarding their local businesses, which leads to selecting and Seasholes (2008)
investment avenues in their domestic corporations or countries
21 Recency bias Decisions of the investors are based on recent events that are in Rudiawarni et al. (2020); Beck et al. (2014); Nofsinger
(Hogarth and Einhorn, 1992) news or are highlighted and the past incidents or information are and Varma (2013); Bhootra and Hur (2013)
generally neglected
22 Over confidence bias In this case investors have unreasonable confidence in their Kartini and Nahda (2021); Raut et al. (2020);
(Odean, 1998) intuitive reasoning, judgments and cognitive abilities to take Mushinada (2020), Mushinada and Veluri (2020);
investment decision Abreu (2019); Khilar and Singh (2019); Madaan and
Singh (2019); Abreu and Mendes (2018), Baker et al.
(2018); Mushinada and Veluri (2019), Metawa et al.
(2018); Dhiman and Raheja (2018), Baker et al.
(2017); Singh et al. (2016), Kumar and Goyal (2016);
Kumar and Goyal (2015), Abreu and Mendes (2012);
Glaser and Weber (2007)
23 Self-control bias Self-control bias reflects the behavioral tendency of investors to Ritika and Kishor (2020), Kishor (2020), Freeman
(Shefrin and Thaler, 2004) save a lesser amount for future and spend more at present and Muraven (2010)
24 Media response bias It is the bias generated through advertisements. Media Hanna et al. (2020); Khilar and Singh (2019); Baker
(Huberman and Regev, 2001) announcements play a critical role in shaping the investment et al. (2018); Bignon and Miscio (2010)
decision of individual investors

Source: Created by authors

conceptual research, we have included articles related to the development of some model or A systematic
theory. In descriptive research, we have included studies that are related to surveys or fact review
findings and analytical research consists of studies that have analyzed previously available
models or facts. It shows that most studies (56.33%) are empirical in nature and most of
them used primary data for the analysis.

459

Figure 5.
Distribution of
studies based on
biases

Figure 6.
Distribution of
studies based on
research design

Figure 7.
Distribution of
studies based on
quantitative
statistical techniques

Figure 8.
Distribution of
studies based
on data type
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460
Figure 9.
Distribution of study

3.3 Framework development

Since the concept of behavioral bias is relevant to finance, sociology, as well as psychology
literature, it is paramount to consider these areas when developing comprehensive models.
An “attribute, consequence and impact” framework is proposed (see Figure 10) to
summarize the understanding of the literature. Subsequently, Table 4 provides a detailed
summary of the studies that have explored the relationship of various individual attributes
that leads to a consequence (behavioral bias) that may impact investment decisions.
3.3.1 Individual attributes. Attributes of an individual investor make up the first block of
the proposed framework. The model demonstrates how the attributes of an investor lead to
behavioral biases which finally transform into investors’ irrationality in decision-making.
Through the content analysis technique applied in this research, we highlight a wide range
of individual attributes that causes various cognitive and emotional biases while making
investment decisions. From the attributes point of view, demographics such as age (Lusardi,
2019), gender (Chen and Volpe, 2002), income level (Lusardi and Tufano, 2015), years of

Figure 10.
Conceptual
framework
S. no. Attributes Consequences (behavioral bias)

1 Age Overconfidence (Khilar and Singh, 2019; Metawa et al., 2018; Mushinada and Veluri, 2018; Baker et al., 2018), self-attribution
(Mushinada and Veluri, 2018; Baker et al., 2018), disposition (Khilar and Singh, 2019; Baker et al., 2018; Ahmed and Boutheina,
2018), media response (Khilar and Singh, 2019), representativeness (Baker et al., 2018), mental accounting (Baker et al., 2018),
anchoring (Baker et al., 2018), herd (Metawa et al., 2018; Baker et al., 2018), loss aversion (Baker et al., 2018), regret aversion (Baker
et al., 2018)
2 Gender Overconfidence (Khilar and Singh, 2019; Alrabadi et al., 2018; Baker et al., 2018; Metawa et al., 2018; Mushinada and Veluri, 2018),
self-attribution (Alrabadi et al., 2018; Baker et al., 2018; Mushinada and Veluri, 2018), disposition (Khilar and Singh, 2019; Baker
et al., 2018; Ahmed and Boutheina, 2018; Alrabadi et al., 2018; Tekçe et al., 2016), familiarity (Alrabadi et al., 2018; Tekçe et al.,
2016), media response (Khilar and Singh, 2019), representativeness (Baker et al., 2018; Alrabadi et al., 2018; Tekçe et al., 2016),
mental accounting (Baker et al., 2018), anchoring (Baker et al., 2018), home bias (Feng and Seasholes, 2008), herd (Devadas and
Vijayakumar, 2019; Alrabadi et al., 2018; Baker et al., 2018; Metawa et al., 2018), loss aversion (Alrabadi et al., 2018; Baker et al.,
2018), regret aversion (Alrabadi et al., 2018; Baker et al., 2018)
3 Occupation Overconfidence (Khilar and Singh, 2019; Mushinada and Veluri, 2018; Baker et al., 2018), self-attribution (Mushinada and Veluri,
2018; Baker et al., 2018), disposition (Khilar and Singh, 2019; Baker et al., 2018), media response (Khilar and Singh, 2019),
representativeness (Baker et al., 2018), mental accounting (Baker et al., 2018), anchoring (Baker et al., 2018), herd (Baker et al., 2018),
loss aversion (Baker et al., 2018), regret aversion (Baker et al., 2018)
4 Marital status Overconfidence (Baker et al., 2018), self-attribution (Baker et al., 2018), disposition (Baker et al., 2018), familiarity (Tekçe et al., 2016),
media response (Khilar and Singh, 2019), representativeness (Baker et al., 2018), mental accounting (Baker et al., 2018), anchoring
(Baker et al., 2018), herd (Baker et al., 2018), loss aversion (Baker et al., 2018), regret aversion (Baker et al., 2018)
5 Income level Overconfidence (Khilar and Singh, 2019; Baker et al., 2018; Mushinada and Veluri, 2018), self-attribution (Baker et al., 2018;
Mushinada and Veluri, 2018), disposition (Khilar and Singh, 2019; Baker et al., 2018; Tekçe et al., 2016), media response (Khilar and
Singh, 2019), representativeness (Baker et al., 2018), mental accounting (Baker et al., 2018), anchoring (Baker et al., 2018), herd
(Baker et al., 2018), loss aversion (Baker et al., 2018), regret aversion (Baker et al., 2018), status quo (Tekçe et al., 2016)
(continued)

individual attributes
Summary of

leading to behavioral
Table 4.
461
review
A systematic

investors
biases among
 16,3

462
QRFM

Table 4.
S. no. Attributes Consequences (behavioral bias)

6 Confidence level Overconfidence (Madaan and Singh, 2019); disposition (Madaan and Singh, 2019); anchoring (Madaan and Singh, 2019); regret
aversion (Madaan and Singh, 2019)
7 Education level Overconfidence (Metawa et al., 2018), disposition (Tekçe et al., 2016), familiarity (Tekçe et al., 2016), representativeness (Tekçe et al.,
2016), regret aversion (Metawa et al., 2018), endowment (Tekçe et al., 2016)
8 Trading experience Overconfidence (Madaan and Singh, 2019; Sabir et al., 2019; Baker et al., 2018; Mushinada and Veluri, 2018; Metawa et al., 2018),
self-attribution (Mushinada and Veluri, 2018; Baker et al., 2018), disposition (Madaan and Singh, 2019; Baker et al., 2018),
familiarity (Tekçe et al., 2016), representativeness (Baker et al., 2018), mental accounting (Baker et al., 2018), anchoring (Madaan
and Singh, 2019; Baker et al., 2018), regret aversion (Madaan and singh, 2019; Sabir et al., 2019; Baker et al., 2018), status quo (Baker
et al., 2018), self-control (Baker et al., 2018)
9 Risk appetite Overconfidence (Areiqat, 2019; Abreu, 2019), disposition (Abreu, 2019; Ahmed and Boutheina, 2018), house money effect (Hsu and
Chow, 2014); regret aversion (Areiqat, 2019); status quo (Areiqat, 2019)
10 Financial literacy Overconfidence (Sabir et al., 2019; Hayat and Anwar, 2016), self-attribution (Hsu et al., 2020), illusion of control (Hsu et al., 2020),
confirmation (Hsu and Chow, 2013), disposition (Hayat and Anwar, 2016), regret aversion (Hayat and Anwar, 2016)
11 Financial self- Overconfidence (Raut et al., 2020); representativeness (Raut et al., 2020); mental accounting (Raut et al., 2020), anchoring (Raut et al.,
efficiency 2020), herd (Raut et al., 2020; Devadas and Vijayakumar, 2019)
12 Short-term and long- Overconfidence (Ahmad, 2020); familiarity (Bulipopova et al., 2014);
term investment plans mental accounting (Shams et al., 2012)

Source: Created by authors

work and socioeconomic factors (Herd et al., 2012) affects the level of behavioral biases A systematic
among investors. Other factors like personal preferences and psychological factors review
(Aydin and Selcuk, 2019), confidence level (Eisenbach and Schmalz, 2015), short and long-
term investments (Siegel, 2021), financial self-efficiency (Fernandes et al., 2014) and risk
appetite (Forbes and Kara, 2010) are crucial aspects examined in the research so far. Risk
tolerance is the willingness of an investor to take a financial risk while making an
investment whereas financial self-efficiency is defined as a person’s belief in the ability to
guide their own finances (Kumar and Goyal, 2020). The investment experience and risk 463
appetite of individual investors form a strong basis for individual investment decisions. A
better financially literate individual tends to display less of these behavioral biases (Kumar,
2020; Atkinson and Messy, 2012; Lusardi and Mitchell, 2011; Remund, 2010). Moreover,
scholars suggest that the confidence level of an investor is strongly related to risk appetite
(Campbell and Vuolteenaho, 2004; Sajid and Bhardwaj, 2021; Yao and Rabbani, 2021).
3.3.2 Consequences. Consequences form the second block of the proposed framework. The
proposed conceptual framework illuminates how each of the individual attributes, leads to 24
types of behavioral (cognitive and emotional) biases among the investors. Thus, affecting the
decision-making of individual investors (see Figure 10 and Table 4). If such biases are removed,
investors will be likely to have better participation in the financial market (Agarwalla et al.,
2015). Through Content analysis, we also found the specific impact of different cognitive biases
and emotional biases. The details of these biases are discussed below.
Cognitive biases: Cognition-led biases like money illusion, confirmation and overconfidence
bias make investors over-ambitious in terms of investment and its related returns (Darriet et al.,
2020; Kartini and Nahda, 2021; Raut et al., 2020; Stephens and Tyran, 2016). Such individual
investors are unable to appropriately account for inflation or deflation. Investors under the
influence of self-attribution bias and conservatism bias attribute their financial achievements to
their hard work and rational decisions (Hsu et al., 2021; Mushinada and Veluri, 2018; Youssef
et al., 2021). At times this leads to over-trading which does not give the required return. Self-
attribution bias is also a significant predictor of overconfidence among individual investors, as
it inspires them to trade more. Gambler’s fallacy bias and representativeness bias result in miss
interpretation of market information leading to financial losses (Alrabadi et al., 2018; Khan
et al., 2021; Liu et al., 2010). Due to anchoring bias and hindsight bias, individual investors start
assuming the existence of relationships in financial markets that do not exist in reality. Thus,
as a result, end up taking wrong investment decisions (Madaan and Singh, 2019; Raut et al.,
2020; Youssef et al., 2021). Subsequently, due to the illusion of control bias and herding bias,
investors are unable to realize that they have no control over the activities of financial markets
(Hsu et al., 2021; Sumathy and Nabeel, 2020). As a result of this, investors end up blindly
following other investors and imitating their practices (Cao et al., 2021; Raut et al., 2020). Mental
accounting bias causes arbitrary decision-making as the investors are unable to process the
required information timely (Ahmad, 2021) which leads to the selection of nonprofitable
investments (Baker et al., 2018). Framing bias amplifies the return expectations of investors and
they feel a sense of disappointment in not achieving them (Suresh, 2021; Fehrenbacher et al.,
2018). This brings down their confidence and optimism for future trading. Disposition bias is a
common problem found among individual investors which makes them hold onto the
nonrequired or nonprofitable investment options (Ahmad, 2021; Sharma and Firoz, 2020).
Thus, blocking the capital flow in the market (Madaan and Singh, 2019; Abreu, 2019). House
money bias inclines individual investors to experiment with high-risk securities after receiving
monetary gains in the past (Duxbury et al., 2015; Hsu and Chow, 2013). Familiarity bias and
home bias lead to investment blockades as investors prefer local investments over foreign
investments which impacts their earnings based on equity investment (Ardalan, 2019;
QRFM Dong et al., 2021, Kumar and Goyal, 2015; De Vries et al., 2017). Due to recency bias,
16,3 investors rely more on recent information compared to the past while making decisions
(Rudiawarni et al., 2020). Media response bias arises due to the stock market reaction of media
leading to volatility in the financial market (Hanna et al., 2020; Khilar and Singh, 2019).
Emotional biases: Biases like loss aversion and regret aversion make investors feel
anxious due to the losses they have suffered previously (Akinkoye and Bankole; 2020; Baker
464 et al., 2018; Gächter et al., 2021; Kartini and Nahda, 2021). On the other hand, endowment
bias makes investors highly cautious about losses in the financial market. This makes them,
at times avoid investments as they get pessimistic about their own financial decisions
(Armansyah, 2021; Holden and Tilahun, 2020). Status quo bias creates a stagnant status
among investors where they neither sell nor buy any securities. Ultimately there is no
movement of funds in their portfolio (Filiz et al., 2018). Because of the existence of self-
control bias, investors do not stick to their investment goals and they end up investing in
risky stocks (Ritika and Kishor, 2020; Kishor, 2020).
3.3.3 Impact.The attributes of an investor lead to the development of behavioral biases
which makes investment decision-making irrational. The concept of individual investor
irrationality has been frequently emphasized by scholars (Statman, 2008). Such irrationality
leads to the wrong valuation of investments in the financial market. The influence of
behavioral biases persists in financial markets, and reducing it is crucial to develop rational
investment choices while participating in financial markets.

4. Discussion
Based on the gaps identified in the existing literature, this section elucidates the future
research directions using the theory–characteristics–context–methods (TCCM) framework
(Paul et al., 2021).

4.1 Theory
The outcome of SLR suggests that there is limited research related to theory building as well as
theory testing in the area of behavioral bias. Only a few theories like grounded theory (Bruhn,
2019), and social learning theory (Sabir et al., 2019), have been adopted by past researchers.
Hence, we recommend that future researchers test behavioral and technology adoption theories
in the current study context which are prominent in other management domains such as
behavioral operations and behavioral marketing. Theories such as equity theory (Carrell and
Dittrich, 1978), theory of planned behavior (Ajzen, 1991), behavioral reasoning theory
(Westaby, 2005), technology acceptance model (Davis et al., 1989), social exchange theory (Blau,
1964), social comparison theory (Gerber et al., 2018) and behavioral learning theory Rothschild
and Gaidis, 1981) can be adapted by scholars to study the effect of behavioral biases on
investment decisions. Consequently, a multitheory perspective can be adopted as a part of
future work to develop a better understanding of the current research context. For example,
behavioral reasoning theory and the technology acceptance model can be holistically adopted
in a single model to see the impact of artificial intelligence in individual investment decision-
making. Future researchers can also develop theories pertaining to the evolution of emotions
and sentiments of individual investors and their impact on financial markets.

4.2 Characteristics
The behavior and investment traits of individual investors have been discussed and
extensively researched in the past (Misra et al., 2022). However, the behavior of intermediaries
through which individual investors invest also needs to be strongly examined. This is a
prominent gap that can act as a future topic of research. Subsequently, the majority of the
research articles that were published were found to be focusing on disposition bias and A systematic
overconfidence bias. Irrespective of the year of publication, country of origin, demography or review
investor background, these biases were common ones to be studied. The reason could be that
these two are the most commonly occurring cognitive biases, which an individual investor
displays. Moreover, the analysis revealed that researchers in the past had given significant
importance to cognitive biases (see Devadas and Vijayakumar, 2019; Baker et al., 2019; Kumar
and Goyal, 2016) compared to emotional biases. Therefore, future studies should explore the
impact of emotional biases and other cognitive biases on individual investment decision- 465
making. Also, the review of past literature illustrates that only a few researchers (like Devadas
and Vijayakumar, 2019; Baker et al., 2019; Kumar and Goyal, 2016) have considered the
association between demographic factors and behavioral bias among individual investors in
their study. Future research can further empirically analyze the effect of various demographic
factors like gender to understand the gender-wise investment decision-making behavior of
individual investors. Only a few researchers in the current study context have performed
mediation and moderation holistically (Ahmad, 2020; Suresh, 2021), although data analysis
tools like mediation and moderation have gained considerable attention. Hence, future research
can be conducted by incorporating mediation and moderation analysis in a single framework.

4.3 Context
We recommend that future research should be conducted in the context of developed
countries as most of the empirical research studies in the area of behavioral biases (for
example, recent studies like Areiqat et al., 2019; Sabir et al., 2019; Metawa et al., 2019; Khilar
and Singh, 2019; Mushinada and Veluri, 2019; Alrabadi et al., 2018; Rasheed et al., 2018;
Bouteska and Regaieg, 2018, 2019) is conducted in developing countries, especially in India
and Tunisia. The probable reason for this could be the emerging financial markets in
developing countries. This provides adequate scope for researchers to make use of emanate
learnings and contribute significantly to the current research context. Also, comparative
cross-country research could be conducted to investigate the relationship between culture
and individual investment decision-making behavior. For example, Indians generally
exhibit conservative behavior as investors (Gakhar, 2019). Hence, it is imperative to study
different culture-specific traits of individual investors as a part of future work.

4.4 Method
Qualitative like Delphi, interpretative phenomenological analysis, behavior resample
adjusted technique (Fernandes et al., 2014) and mixed-methods research can be applied in
the future to explore novel factors affecting behavioral biases in finance. The behavioral
bias scale used by past researchers for surveys and collection of data is generalized. They do
not cater to specific cognitive or emotional biases. Therefore, specific scales pertaining to
different cognitive and emotional biases need to be developed (Joshi et al., 2022). Moreover,
as far as past research is concerned, it was found that the majority of the studies used
primary data for analysis. This signals an opportunity for secondary data-based research
work. Also, longitudinal research can be conducted to explore the long-term effects of
behavioral biases on individual investors’ decision-making.

5. Conclusion
Behavioral bias is an evolving area that has netted the interest of academicians and research
scholars in recent years. It has also emerged as a pertinent topic of interest among individual
investors, institutional investors and financial professionals. The present study is another
contribution toward further understanding the impact of behavioral biases among
QRFM individual investors. A SLR was performed on various digital databases following a specific
16,3 procedure to define, determine, retrieve, select and synthesize extant research. The findings
were used to summarize existing knowledge on behavioral biases that arise among
individual investors while making investments and encapsulate past as well as current
thematic trends of academic research in this area. Future avenues of research have been
presented through the TCCM framework by amalgamating insights from existing
466 limitations, recommendations and gaps identified during this review.
We believe the present review is one of the most comprehensive studies on behavioral
biases. However, like any other study, the current research is also prone to a few limitations
which can be considered as a part of future work. Future research could focus on different
ways of conducting a literature review like meta-analysis and bibliometric analysis which
are gaining familiarity among the research fraternity. Since this SLR is conducted based on
keyword search analysis, there could be a possibility that a few important articles would
have been missed out. We acknowledge this as a limitation of the study.

5.1 Theoretical implications

The current article is an attempt to contribute to the existing literature on behavioral
finance. In the first instance, our SLR suggests a meticulously organized structure of
literature available in the past to signify the existing academic frontiers in this research area.
Secondly, the discovery of thematic gaps and the recommendation of theme-specific RQs are
substantial results of the methodological literature review applied. The conclusions and
comprehensive TCCM analysis of every theme present a groundwork for future scholars
who are interested to work in the domain of behavioral bias. Thirdly, the suggested
framework identifies the relationships which are currently under investigation, such
framework caters to opportunities that might be investigated in the forthcoming years.
Lastly, based on the research profile (see Section 3), the identification of plausible areas may
boost new scholars to take existing literature to improved statures.

5.2 Practical implications

The subject of behavioral finance appears encouraging and exciting with the kind of
development it has witnessed in the past, as it allows ways to reap benefits from the
financial market. The SLR extends vital implications for specialists and consultants,
practitioners and professionals, such as investment advisors, managers and administrators
to address behavioral bias. Behavioral biases pertaining to financial decisions can be
reduced by focusing on multiple factors associated with individual investors, may it be
personal choices and preferences or risk-bearing capacity, further including factors like
family and social background. Also, financial advisors need to focus on investor’s goals and
objectives which acts as catalyst behind the selection of a particular investment avenue.
Accordingly, they need to be counseled to make informed decisions. Such counseling would
relieve deleterious emotions that drive investors to inappropriate financial decisions. Lastly,
the launch of awareness modules for investors to be used through personal devices need to
be promoted which keeps them educated and aware of the financial markets.

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Corresponding author
Aditya Kumar Sahu can be contacted at: [email protected]

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