How Mental Accounting And Overconfidence Bias Shape Investment Decisions Through Risk Perception

Abstrak

This study examines the effect of mental accounting and overconfidence bias on investment decisions, the mediating role of risk perception, and the moderating role of financial literacy on the relationship between risk perception and investment decisions among Indonesia Stock Exchange investors in North Sumatra Province. Primary data were collected through a five-point Likert questionnaire from 35 purposively selected stock investors and analysed with partial least squares structural equation modelling (PLS-SEM) using 5,000 bootstrap subsamples; the moderating effect was estimated with the two-stage approach. The measurement model met the criteria for reliability, convergent validity and discriminant validity. Mental accounting increased risk perception (β = 0.489), while overconfidence bias reduced it (β = -0.535). Risk perception had a positive effect on investment decisions (β = 0.695), whereas the direct effects of mental accounting and overconfidence bias were not significant. Risk perception fully mediated the effects of both biases on investment decisions, and financial literacy strengthened the effect of risk perception on investment decisions (β = 0.385). These findings suggest that behavioural biases shape investment decisions through risk perception. Given the small sample, the results should be treated as preliminary evidence