The Impact of Financial Literacy and Overconfidence Bias on Investment Decision-Making Behavior: The Mediating Role of Psychological Well-Being

Abstract

Behavioral finance theory suggests that investors’ financial decisions are influenced not only by rational evaluation but also by psychological and emotional factors. This study examines the impact of financial literacy and overconfidence bias on investment decision-making behavior, with psychological well-being acting as a mediating variable among individual investors. Financial literacy enhances investors’ ability to understand financial information and make informed investment choices, whereas overconfidence bias may lead individuals to overestimate their knowledge and underestimate investment risks. Psychological well-being is proposed as a mediating factor because emotionally stable and psychologically healthy individuals are more likely to make balanced and rational financial decisions. The study adopts a quantitative research design using survey data collected from individual investors. Statistical techniques such as correlation analysis, regression analysis, and mediation analysis will be employed to test the proposed relationships among the variables. The findings are expected to extend the literature on behavioral finance by explaining how psychological well-being influences the relationship between cognitive biases and investment decision-making behavior. The study may also provide practical implications for investors, financial institutions, and policymakers in developing strategies that improve financial awareness and psychologically informed investment practices