Unpacking Investor Psychology: A Systematic Review and Meta-Analysis of Behavioural Biases Shaping Investment Decisions*

TL;DR

This study reviews how psychological biases influence investment decisions, especially in emerging economies, and highlights gaps in current research.

Contribution

The study identifies underexplored biases and calls for more inclusive and practical research in diverse and informal financial markets.

Findings

Most studies focus on overconfidence, herding, and loss aversion in formal markets.

Biases like regret aversion and anchoring are rarely studied despite their importance.

Few studies test real-world solutions to mitigate biases in investment decisions.

Abstract

This study systematically examines how behavioural biases affect investment decisions across formal and informal financial markets, with a focus on emerging economies. It aims to map the evolution of the field, highlight neglected cognitive biases, and uncover geographical and methodological gaps in current research.

A rigorous Systematic Literature Review (SLR) was conducted using the PRISMA protocol, analysing 63 empirical studies from the Scopus database. Advanced bibliometric tools, VOSviewer and Biblioshiny, were employed to identify key trends, thematic clusters, and shifts in research focus in behavioural finance.

The review reveals a heavy concentration of studies on biases such as overconfidence, herding, and loss aversion, primarily within formal market settings and South Asian contexts. Many other essential biases, including regret aversion, anchoring, and emotional influences, are still rarely studied. Very few studies test real-world solutions, such as education, digital tools, or reminders, that may help people make better financial decisions. Visual and longitudinal mapping demonstrate a rising academic interest after 2016, but expose a lack of representation from many regions and emerging behavioural dynamics. Research on informal investing and diverse cultural settings is also limited.

This review highlights that many investors, especially in emerging economies, are guided by emotions and mental shortcuts rather than careful reasoning. While interest in this topic has grown, most research still focuses on a few well-known biases and limited regions. Many significant biases, such as regret aversion and anchoring, remain underexplored. There is also very little evidence on what helps reduce these biases in real-world settings. This study advocates for more diverse, practical, and inclusive research that can help investors make informed financial decisions, particularly in informal markets where support is limited.

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