Behavioural Biases in Investment Decision-Making and Their Impact on Investment Performance

Abstract

This paper provides an in-depth discussion of behavioural bias in investment decision-making and its impact on investment performance. Current research mostly focuses on theories and lacks specific coping strategies, while behavioural biases are prevalent in investment decision-making, affecting investment performance and the stable development of financial markets. By analysing cognitive bias, emotional bias and volitional bias, their manifestations and negative impacts on investment performance are elaborated, such as overconfidence leading to frequent trading and loss aversion making investors short-sighted. In order to reduce the behavioural biases, coping strategies such as searching for counter evidence, timely detection of errors and stop loss, broadening horizons and reducing noise are proposed. Investors can make rational decisions by collecting information through multiple channels, verifying the reasonableness of viewpoints, establishing a stop-loss mechanism, enriching thinking paths, and avoiding noise interference. In conclusion, investors should recognise the existence of behavioural biases, adopt effective strategies to improve the accuracy and rationality of investment decisions and achieve better investment performance, and financial institutions and regulators should also strengthen investor education and guidance.