The impact of behavioral biases on investment decisions: a serial mediation analysis

Authors

  • V Shunmugasundaram Faculty of Commerce, Banaras Hindu University, Varanasi, India
  • Aashna Sinha Faculty of Commerce, Banaras Hindu University, Varanasi, India

Keywords:

Decision-making, Investment, Heuristics, Psychological biases, Sequential mediation

Abstract

Purpose

The purpose of this study is to investigate the impact of behavioral biases on investment decisions through a serial mediation of overconfidence and disposition effects.

Design/methodology/approach

The authors assess the behavioral biases affecting the investment decisions of life insurance policyholders through the serial mediation of overconfidence and disposition effects using a structured questionnaire. The study included 501 life insurance policyholders who were selected using a snowball sampling technique.

Findings

The results of this study revealed that behavioral biases influence the investment decisions of life insurance policyholders. The results also support the serial mediation model, where behavioral biases influence the investment decisions of life insurance policyholders via overconfidence and disposition effects.

Research limitations/implications

This study makes a theoretical contribution to the field of behavioral finance by exploring the influences of behavioral biases on investment decisions. It also introduces overconfidence and disposition effects as serial mediators between behavioral biases and investment decisions. The study will be helpful for researchers, academicians and policymakers in the development of a more comprehensive model in the area of behavioral finance and in raising awareness regarding those biases among policyholders in order to improve their investment strategy.

Originality/value

This study has extended the ongoing simple mediation model by integrating overconfidence and disposition effects in a serial mediation model between behavioral biases and investment decisions. The study will contribute to the area of behavioral finance, as it is the first time this particular study has been conducted according to the authors’ knowledge.

DOI: https://doi.org/10.1108/JEFAS-08-2023-0243

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2025-05-10

How to Cite

Shunmugasundaram, V., & Sinha, A. (2025). The impact of behavioral biases on investment decisions: a serial mediation analysis. Journal of Economics, Finance and Administrative Science, 30(59), 5–21. Retrieved from https://revistas.esan.edu.pe/index.php/jefas/article/view/813