Abstract

This study examines the impact of behavioral finance on investment decision-making. Behavioral finance acknowledges that investors are not always rational and that their decisions can be influenced by psychological biases. The primary data was collected through a questionnaire and total 106 responses were generated based on which this research was done. Herding, Heuristics and prospect theory were the independent variables where as the investment decision making was the dependent variable. Furthermore, heuristics and investing decisions have a strong positive connection, suggesting that Pakistani investors tend to make better decisions when heuristics are more frequent. In the same way, investing decisions are positively and significantly correlated with herding behavior. Prospect theory shows a beneficial association with investment decisions despite not showing a significant correlation. Through an analysis of various psychological biases and market deficiencies, this study demonstrates how behavioral finance challenges traditional finance theories and offers new insights into investor behavior and market dynamics. By understanding and addressing behavioral biases, investors and financial professionals can make more informed decisions and improve investment outcomes. This abstract includes the key findings and implications of the study, highlighting the importance of using behavioral finance principles into investment decision-making processes.