The influence of psychological factors on investment decision-making: Psychological features of economic relations formation

Abstract

The article aimed to analyse the influence of psychological factors on the investment decision-making process, which shapes the economic behaviour of investors in Ukraine. The research involved surveys and experimental tasks conducted among investors, with the data analysed using statistical methods to identify the impact of psychological factors on investment decisions. Fear and greed have been found to be most significant emotions affecting investment decisions, whereas fear leads to excessive caution and risk avoidance. In contrast, greed drives investors to take on excessive risks. Overconfidence in one’s knowledge and skills results in an overestimation of opportunities and an increased risk of losses, while confirmation bias leads investors to seek information that supports their previous decisions, ignoring conflicting data. Expert opinions and group behaviour significantly influence investment decisions, particularly under conditions of uncertainty, often resulting in herd behaviour and the formation of economic bubbles. The experimental tasks demonstrated that investors frequently make irrational decisions under the influence of emotions and cognitive biases, even when they can access complete information about risks and opportunities. The survey results also indicated that investors with higher levels of financial literacy are less susceptible to the influence of emotions and cognitive biases, highlighting the importance of financial education in improving the quality of investment decisions. These findings illustrate how psychological factors can distort the investment decision-making process and underscore the necessity of considering these factors when developing investment strategies.