BEHAVIORAL DETERMINANTS OF INVESTMENT DECISIONS: A SEM-BASED ANALYSIS BY PROSPECT THEORY”

Abstract

This study applies a quantitative modeling approach to assess the impact of key behavioral biases— regret aversion, mental accounting, disposition effect and loss aversion —on the investment behavior of retail investors. A Structural Equation Modeling (SEM) framework is used for evaluate both One-to-one relationships among the constructs. The model exhibited a good fit (CFI = 0.962, RMSEA = 0.049, χ²/df = 1.78), with mental accounting and loss aversion significantly impairing rational decision-making. The findings contribute to the integration of behavioral insights into financial decision models, offering implications for optimization, investor education, and policy design in emerging markets.