BEHAVIOURAL BIASES AND THEIR EFFECT ON RISK PERCEPTION

Abstract

The main objective of this study is to discover the impact of behavioural biases on the risk perception of individual investors. The descriptive and causal research design was employed in this study. This study used primary data from one hundred fifty-five individual investors collected randomly. The collected data has been analyzed by using some statistical tools such as mean, standard deviation, correlation analysis, ANOVA and regression analysis. The data is collected through a structured questionnaire method using the Likert Scale. The age, gender, employment type, and expertise are the indicator of demographic factors. The behavioural biases are investment sentiment, overconfidence bias, anchoring bias, herding bias, loss aversion bias, and risk perception are the dependent variables in this study. The collected information and the numerical data have been analyzed by using the SPSS 27.0 version to show the data and results clearly. The regression analysis shows that the value of the R square is 0.430, which indicates that 43.0% of the systematic variation in risk perception can be explained by independent variables such as investment sentiment, overconfidence bias, anchoring bias, herding bias, and loss aversion bias. The remaining percentage is due to the effect of other factors. The regression analysis shows that when all independent variables are zero, the baseline Risk Perception is 7.695. Investment Sentiment (coefficient 0.316, p=0.000) has positive, significant effects on Risk Perception, with Investment Sentiment being a strong predictor. Herding Bias (coefficient 0.388, p=0.000) also significantly increases Risk Perception, underscoring the impact of social influences on risk awareness. Conversely, Anchoring Bias (coefficient -0.157, p=0.014) has a significant negative effect, suggesting that those who rely on initial information perceive lower risk. Overconfidence (p=0.290) and Loss Aversion (p=0.333) are not statistically significant, showing they do not meaningfully affect Risk Perception in this model. Overall, social influences (herding) and sentiment are key factors in shaping investors' risk perception, while anchoring bias reduces it. In conclusion, these findings reinforce the notion that investor psychology, shaped by both individual and social factors, plays a critical role in shaping how risks are perceived and managed in the financial context.