Examining the Influence of Cognitive and Emotional Biases on Investment Decision-Making through Daoist Philosophy: The Role of Financial Literacy

Abstract

 Behavioral Finance theory is the prime factor that suggests that investors are irrational; they are more sensitive towards cognitive and emotional biases when compared to rational decisions. Financial Literacy plays an important role in investment decision-making, as literacy influences investment decisions and enhances a person's ability. The study examines how cognitive and emotional biases influence investment decision-making and how financial literacy moderates these decisions, drawing on Daoist philosophy. This Daoist philosophy focuses on emotional balance, harmony, moderation and independence from extreme attachment, which leads to offering an insightful system of philosophy for illustrating irrational economic behavior. The financial markets are often assumed to be rational, but fewer investors believe in emotions and mental shortcuts that mislead the idea of investment. Data collection was done from 495 active investors through a structured questionnaire using purposive sampling. The study used Structural Equation Modelling (PLS-SEM) for exploring the relationship between cognitive biases, emotional biases, financial literacy and investment decision making, along with R Studio using SCOPUS database for trending topics, word cloud, country collaboration map and lifecycle. The findings revealed that investors' decisions are not influenced by cognitive biases, whereas investors' decisions are directly influenced by emotional biases and financial literacy. The moderation analysis indicates that financial literacy is not significantly influenced by cognitive and emotional biases, and the trending topic is the loss aversion influence on female investment decision-making. The study aims to address the gap in understanding investor choices by examining how cognitive and emotional biases influence decisions. The study contributes especially to researchers for doing research on trending topics and for stock investors to be mindful of investment decisions and psychological biases by extending the wisdom of choices in investment for intensified demand efficacy..