Impact Of Cognitive Biases On Emotional Decision-Making And Investment Performance: A Behavioral Finance Approach.

Abstract

This study examines how cognitive and emotional biases affect investment performance, with emotional decision-making serving as a mediator. Grounded in behavioral finance, particularly prospect theory and the dual-process model, the research analyzes biases such as overconfidence, anchoring, loss aversion, herding, confirmation bias, and mental accounting. Using a quantitative approach with data from 342 individual investors, the findings show that both cognitive and emotional biases significantly influence emotional decision-making, leading investors to rely on intuition rather than rational analysis. Emotional decision-making partially mediates the relationship between cognitive biases and investment performance, indicating that emotions connect biased thinking to investment outcomes. The study highlights the need for behavioral awareness and emotional regulation, offering practical implications for investors, advisors, and policymakers to foster more rational and sustainable investment practices.