Behavioral Finance: Analyzing the Influence of Overconfidence, Herding and Anchoring Biases on Investor Behavior and Financial Market Trends

Behavioral finance challenges the traditional assumption of rational decision-making in financial markets by emphasizing psychological influences on investor behavior. This study empirically examines the influence of three major cognitive biases—overconfidence, herding, and anchoring—on investor behavior and financial market trends. The research design used was both descriptive and analytical. A standardized questionnaire distributed via Google Forms was used to gather primary data from 150 investors. SPSS software was used to evaluate the gathered data. Regression analysis, correlation analysis, and reliability analysis (Cronbach’s Alpha) were among the statistical techniques used to investigate the connections between investor decision-making and behavioral biases. The results suggest that while overconfidence had a mixed effect and worse reliability, herding and anchoring biases had a statistically significant favorable impact on investor behavior. The findings support the notion that psychological biases significantly influence market movements and investing choices. The study emphasizes the value of financial literacy in reducing irrational investment behavior and adds empirical evidence from retail investors to the body of literature on behavioral finance.