International Journal on Science and Technology

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Volume 17 Issue 4
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Understanding Investor Behaviour: A Theoretical Perspective on Behavioural Finance in Modern Financial Markets

Author(s) Ms. BAREERA BANU PC, Dr. A KRISHNAN
Country India
Abstract Behavioural finance, which is an offshoot of the development of financial economics, violates the conventional concept of investor rationality by adding concepts from psychology, cognitive science and behavioural economics to the analysis of financial decisions. This paper provides a theoretical overview of the development of the field of behavioural finance, from the conceptual beginnings of prospect theory and heuristic decision making, to its current interaction with neuro-finance and artificial intelligence. After summarizing the main cognitive and emotional biases reported in the literature, such as overconfidence, loss aversion, anchoring, herding, and mental accounting, the review investigates their expression in investment decisions, anomalies in asset prices, and other aspects of markets that do not seem to be addressed by classical efficient market theory. The article also examines the Adaptive Markets Hypothesis as a bridging theory between the rational and behavioural approaches, and reviews new research examining how AI-driven robo-advisors can benefit in combating, and sometimes unwittingly exacerbating, investor biases. The review finds that, in addition to being a critique of the classical school, behavioural finance is also an integrative discipline with direct and important implications for investment management, financial regulation and the design of technology-driven financial advice, and that some biases are more intractable than others, such as overconfidence.
Keywords Keywords: Behavioural finance, Investor psychology, Cognitive biases, Prospect theory, Robo-advisors, Market anomalies
Field Business Administration
Published In Volume 17, Issue 4, October-December 2026
Published On 2026-10-06
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Crossref DOI prefix of IJSAT is 10.71097/IJSAT

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