Heuristic and Optimism Biases in Investment Decisions: Mediating Effects of Risk Perception Among Investors in Tripura

DOI: https://doie.org/10.10399/APER.2025829176

Authors:

Sankha Subhra Deb, Dr. Sujit Deb

Keywords:

SEM, Heuristics, Optimism bias

Abstract:

The present study examines the mediating role of risk perception between heuristics and optimism bias in shaping investment decisions among investors from Tripura. Utilizing a quantitative research approach, data was gathered from 316 individual investors through structured questionnaires. Statistical analysis was conducted employing Structural Equation Modeling (SEM) to investigate the proposed relationships. Findings revealed that heuristics significantly influence investors' optimism bias, subsequently affecting their investment decisions. Moreover, risk perception emerged as a crucial mediating factor, indicating that investors' subjective assessment of investment risks partially explains the relationship between heuristic-driven decisions and optimism bias. The outcomes suggest that investors relying heavily on heuristics tend to underestimate risks due to heightened optimism, leading to potentially suboptimal investment outcomes. This study enhances the understanding of cognitive biases within the regional context of Tripura, providing valuable insights for policymakers, financial advisors, and individual investors aiming to mitigate irrational financial decision-making behaviors.

PDF