Behavioral Biases and Investment Decisions: The Moderating Role of Financial Literacy among Retail Investors in the Digital Era

Duduh Sujana; Nugraha Nugraha; Dismam Dismam; Imas Puramasari

doi:10.59261/inkubis.v8i3.430

Authors

Duduh Sujana Universitas Pendidikan Indonesia
Nugraha Universitas Pendidikan Indonesia
Dismam Universitas Pendidikan Indonesia
Imas Puramasari Universitas Pendidikan Indonesia

DOI:

https://doi.org/10.59261/inkubis.v8i3.430

Keywords:

Behavioral finance, financial literacy, investment decisions, retail investors, SEM

Abstract

Background: Digital investment services have expanded retail participation in Indonesia's capital market, but easier market access does not necessarily produce more rational investor behavior. Psychological tendencies continue to shape individual choices, and prior evidence remains inconsistent regarding whether financial literacy can restrain those tendencies.

Objective: This research examines the relationship between an aggregate behavioral-bias construct and investment decisions, the direct role of financial literacy, and the extent to which financial literacy changes the behavioral-bias relationship among retail investors in a digital investment setting.

Methods: A quantitative explanatory design was applied to 300 retail investors who used digital investment platforms. The proposed direct and interaction relationships were estimated using Partial Least Squares Structural Equation Modeling (PLS-SEM).

Results: Behavioral biases were positively associated with investment decisions, while financial literacy also showed a positive direct relationship. The interaction coefficient was negative and significant, indicating that higher financial literacy reduces the strength of the association between behavioral biases and investment decisions.

Conclusion: Financial knowledge supports more informed investment judgment and can moderate behavioral influence, although it does not remove psychological tendencies entirely. Investor education should therefore integrate financial competence with awareness of common behavioral biases.

Downloads

Download data is not yet available.

References

Agarwal, A., Rao, N. M., & Nogueira, M. C. (2025). Financially savvy or swayed by biases? The impact of financial literacy on investment decisions: A study on Indian retail investors. Journal of Risk and Financial Management, 18(6), 322.

Aigbovo, O., & Ilaboya, O. J. (2019). Does behavioural biases influences individual investment decisions. Management Science Review, 10(1), 68-89.

Aqham, A. A., Endaryati, E., Subroto, V. K., & Kusumajaya, R. A. (2024). Behavioral biases in investment decisions: A mixed-methods study on retail investors in emerging markets. Journal of Management and Informatics, 3(3), 568-586.

Basha, S. M., Kethan, M., Jaggaiah, T., & Khizerulla, M. (2022). Financial literacy and investment behaviour of IT professionals in India. East Asian Journal of Multidisciplinary Research, 1(5), 777–788.

Becker, G. S. (1964). Human capital: A theoretical and empirical analysis, with special reference to education. University of Chicago Press.

Buz, T., & de Melo, G. (2024). Democratisation of retail trading: A data-driven comparison of Reddit’s WallStreetBets to investment bank analysts. Journal of Business Analytics, 7(4), 256-272.

Cavezzali, E., Gardenal, G., Rigoni, U., Cavezzali, E., & Rigoni, U. (2015). Risk Taking Behaviour and Diversification Strate- gies : Do Financial Literacy and Financial Educa- tion Play a Role ? Risk Taking Behaviour and Diversification Strategies : Do Financial Literacy and Financial Education Play a Role ? Gloria Gardenal. https://doi.org/10.12831/80533

Challa, S. R. R. (2025). Advancements in Digital Brokerage and Algorithmic Trading: The Evolution of Investment Platforms in a Data Driven Financial Ecosystem. Advances in Consumer Research, 2, 238-249.

Chen, Y., & Zhang, L. (2021). How does digital finance affect retail investor participation in the stock market? Evidence from China. Finance Research Letters, 43, 102024. https://doi.org/10.1016/j.frl.2021.102024

John, T., Jena, A., Swain, D., Budhiraja, M., Gupta, D., & Singh, J. (2025). The Influence of Behavioral Biases on Investment Decisions: A Conceptual Analysis of Retail Investor Psychology. Journal of Marketing & Social Research, 2, 453-457.

Firmansyah, A., Suhardi, D., & Kurniawan, R. (2023). The moderating role of financial literacy on the effect of behavioral biases on investment decisions. Journal of Behavioral Finance, 24(2), 145–162.

Guijarro, F., Moya-Clemente, I., & Saleemi, J. (2019). Liquidity risk and investors’ mood: Linking the financial market liquidity to sentiment analysis through Twitter in the S&P500 index. Sustainability, 11(24), 7048.

Kahneman, D., & Tversky, A. (2013). Prospect theory: An analysis of decision under risk. In Handbook of the fundamentals of financial decision making: Part I (pp. 99-127). https://doi.org/10.2307/1914185

Kong, Y., Nie, Y., Dong, X., Mulvey, J. M., Poor, H. V., Wen, Q., & Zohren, S. (2024). Large language models for financial and investment management: Applications and benchmarks. Journal of Portfolio Management, 51(2).

KSEI. (2023). Statistik pasar modal Indonesia September 2023. Kustodian Sentral Efek Indonesia. https://www.ksei.co.id

Kumar, H. (2024). Breaking barriers: How financial technology is transforming traditional finance amid global challenges. ISAR Journal of Economics and Business Management, 2(12), 5-14.

Kumar, M. R. (2024). Investors’ Behavior towards Stock Trading Apps in National Capital Region Delhi. DARSHAN: THE INTERNATIONAL JOURNAL OF COMMERCE AND MANAGEMENT Учредители: Darshan University, 4(2), 1-23.

Lerman, A. (2020). Individual investors' attention to accounting information: evidence from online financial communities. Contemporary Accounting Research, 37(4), 2020-2057.

Lepone, G. (2016). Retail investor behavioural biases, the causes and impacts: evidence from equity markets (Doctoral dissertation, Macquarie University).

Malik, L., Quddus, A., Watto, W. A., Barakat, H. A., Fahlevi, M., & Aziz, A. L. (2026). Behavioural biases and investment decisions with mediating role of risk perception and moderating role of financial literacy. Discover Psychology.

Naheed, S., Amin, S., & Lodhi, A. R. K. (2026). Behavioral Biases and Retail Investor Decision-Making in the Era of Social Media Trading: A Qualitative Study. Policy Journal of Social Science Review, 4(2), 480-491.

OJK & BPS. (2024). Survei Nasional Literasi dan Inklusi Keuangan (SNLIK) 2024. Otoritas Jasa Keuangan.

Pokharel, J., & Maharjan, I. (2024). Green human resource management for Financial Behavior of Generation Z and Millennials organizational sustainability : lessons from insurance companies in emerging market. 1(1), 148–170.

Putri, A., & Yulianti, E. . (2025). Pengaruh Perilaku Anchoring dan Herding Bias terhadap Pengambilan Keputusan Investasi dengan Literasi Keuangan Sebagai Variabel Moderasi pada Investor di Kota Bandung Tahun 2024. JIIP - Jurnal Ilmiah Ilmu Pendidikan, 8(3), 2714-2723. https://doi.org/10.54371/jiip.v8i3.7242

Reinholtz, N., Fernbach, P. M., & De Langhe, B. (2021). Do people understand the benefit of diversification? Quantitative Literacy, 12(1), 1–22. https://doi.org/10.5038/1936-4660.12.1.6Electronic copy available at: https://ssrn.com/abstract=2719144.

Rumysa, & Islam, A. U. (2025). Mapping investor sentiment and behavioral biases in financial decisions (2000–2024): a bibliometric approach. SN Business & Economics, 5(11), 165.

Servon, L. J., & Kaestner, R. (2008). Consumer financial literacy and the impact of online banking on the financial behavior of lower‐income bank customers. Journal of consumer affairs, 42(2), 271-305.

Simon, H. A. (1955). A behavioral model of rational choice. The quarterly journal of economics, 99-118.

Talwar, S., Talwar, M., Tarjanne, V., & Dhir, A. (2021). Why retail investors traded equity during the pandemic? An application of artificial neural networks to examine behavioral biases. Psychology & Marketing, 38(11), 2142-2163.

Tamba, N. Y. B., Shamira, H. R., Sinaga, M. C., Sadalia, I., & Nababan, A. I. (2026). Pengaruh literasi keuangan, herding behavior, dan fear of missing out terhadap keputusan investasi mahasiswa pada platform digital. Jurnal Ilmiah Akuntansi Keuangan dan Bisnis, 7(1).

Tan, L., Zhang, X., & Zhang, X. (2024). Retail and institutional investor trading behaviors: Evidence from China. Annual Review of Financial Economics, 16, 459-483.

Yuwana, H., Mustaqim, M., Zaki, A., & Violita, C. E. (2025). Pengaruh Herding Behavior, Overconfidence Terhadap Keputusan Investasi Generasi Muda Di Surabaya Dengan Literasi Keuangan Sebagai Variabel Moderasi. Jurnal Ilmiah Manajemen, Ekonomi, & Akuntansi (MEA), 9(1), 3393-3414. https://doi.org/10.31955/mea.v9i1.5604

Zahera, S. A., & Bansal, R. (2018). Do investors exhibit behavioral biases in investment decision making? A systematic review. Qualitative Research in Financial Markets, 10(2), 210-251.