Abstract
The current study examines how overconfidence, herding, underconfidence, and risk perception influence the investment decisions made by individual investors. Additionally, it delves into the mediating role of risk perception in these relationships. The researchers collected 410 responses from individual investors in southern India using a structured questionnaire, and the hypotheses were tested using partial least squares structural equation modeling (PLS-SEM). The results indicate that overconfidence and risk perception significantly influence investors’ decisionmaking. Analyzing how underconfidence, herding, and overconfidence influence investment decisions, in scenarios with and without considering risk perception, revealed that risk perception serves as a partial mediator in the link between overconfidence and investment decision-making. Whereas it fully mediates the link between herding, under confidence, and investors’ decision-making. This research provides significant insights to aid in mitigating these biases in decision-making. More importantly, it also enhances an understanding of biases and risk perception in investment decisions, which could be beneficial for individual investors, investment advisors, portfolio managers, and policymakers engaged in the stock market. This study is the first to link the variables of overconfidence, herding, under confidence, and risk perception with investors’ decision-making, although numerous studies have examined prominent biases and their impact on investors’ decision-making.
Keywords: Herding, Individual Investors, Overconfidence, PLSpredict, Risk Perception, Underconfidence.