Bias-Driven Investing: An Empirical Study of Behavioral Factors Affecting Investor Decisions in the Colombo Stock Exchange – Sri Lanka

Investment decisions made by individual investors are often influenced by psychological and emotional factors rather than purely rational analysis, which can lead to hesitation, reduced trading activity, and unfavourable investment outcomes. This study is motivated by the observation that such behavioural tendencies contribute to the low participation of individual investors in the Colombo Stock Exchange (CSE), despite the availability of financial information and increasing financial literacy in Sri Lanka. Accordingly, the study investigates the influence of key behavioural biases, such as herding, representativeness, overconfidence, regret aversion, and loss aversion, on individual investment decision-making. A cross-sectional research design was employed, and primary data were collected from 358 individual investors using a structured questionnaire distributed through convenience and snowball sampling methods. The data were analysed using multiple linear regression techniques with SPSS to examine the proposed relationships. The results indicate that all selected behavioural biases have a significant and positive influence on investment decision-making, highlighting the critical role of behavioural factors in shaping investor behaviour in an emerging market context. These findings extend the existing behavioural finance literature by providing empirical evidence from Sri Lanka and offer practical implications for policymakers, financial institutions, and investor education programmes aimed at improving decision quality, reducing bias-driven hesitation, and encouraging more active and informed participation in the stock market.