Cognitive Biases, Risk Perception, and Irrational Investment Decision-Making: A Multi-Group Analysis

Behavioral biases impact investment choices in addition to financial analysis. This study examines how risk perception serves as a moderating factor in the relationship between availability bias and loss aversion bias, influencing investment decision-making. Using a quantitative approach, data were collected from 390 Nepalese investors through a structured questionnaire and analyzed using structural equation modelling and a multi-group analysis. Availability bias, where investors rely on readily accessible information rather than conducting in-depth analysis, was found to have a significant positive effect on irrational investment decisions. However, there was no discernible direct effect of loss aversion bias, which is the propensity to avoid losses more than to pursue comparable benefits. Risk perception played a crucial role, significantly influencing investment decisions and moderating the effect of loss aversion bias by reducing its impact on irrational decision-making. However, risk perception did not moderate the association between availability bias and investment choices. The findings suggest that investor behavior in Nepal is influenced by cognitive shortcuts and risk perception, underscoring the importance of financial education and awareness in promoting rational decision-making. Future research should explore other behavioral biases and investigate the role of digital investment platforms in shaping investor psychology.