An Empirical Investigation into How Financial Literacy, Overconfidence, and Attitudinal Biases Shape Investment Decisions

Abstract

Economic and market factors alone do not determine the investment decision since financial knowledge and behavioural tendencies of individuals are as well influence the decision. This paper looks at the roles of financial literacy, overconfidence, and attitudinal biases in the investment behaviour of the retail investor. In analyzing the behavioural and cognitive components that lead to investment choices, a sample of 150 respondents using a simple random sampling method was adopted as this research design was descriptive in nature. The comparison between the levels of financial literacy was done using statistical tools among the demographic variables, including age, gender, and income. This research seeks to (i) determine the degree of financial literacy among individual investors, (ii) determine whether the level of financial literacy varies among individual investors, (iii) analyze how overconfidence and attitudinal biases affect investment decisions, and (iv) determine the relationship between financial awareness and behavioural biases to determine overall performance of investment and risk-taking behaviour. The findings indicate that financial literacy differs across demographic groups and that behavioural biases significantly affect investment choices, often leading individuals away from rational decision-making. The research identifies the significance of financial education and behavioural awareness to enhance the quality of investments and facilitate informed financial planning. These results indicate that there is a financial knowledge gap between generations, and specific financial education programs are needed depending on the age group to help make more informed investment decisions. The results have underscored the value of gender-based financial education programs to guarantee equal access to financial literacy, empower people to participate in investments and financial literacy to make improved financial decisions by both genders.