MIND OVER MARKET: THE IMPACT OF BEHAVIORAL FINANCE ON SUSTAINABLE INVESTMENT DECISIONS IN EMERGING MARKETS

Abstract

This paper investigates how risk perception, herding, loss aversion, and overconfidence—all behavioral finance factors—affect sustainable investment choices in Pakistan's energy industry. In contrast to classical finance theories, which presume rational decision-making, behavioral finance suggests that investor behavior can be influenced by psychological biases. This study examines how these biases influence investment decisions, especially with regard to environmental sustainability, using a survey-based methodology with responses from mid-level managers and workers in manufacturing companies. The findings show a strong positive 
relationship between environmental sustainability and financial behavior, indicating that behavioral biases affect sustainable investing. For instance, overconfidence frequently results in overtrading and under-diversification, while loss aversion might prevent people from investing in renewable energy because of the perceived dangers. In order to promote sustainable investment, particularly in emerging markets, the practical ramifications highlight the necessity of investor education, supportive regulations, and customized financial products. Nevertheless, drawbacks including the use of self-reported data and a cross-sectional design indicate that other industries, geographical areas, and longitudinal methodologies should be included in future studies. By filling in these gaps, this study offers guidance to investors, financial institutions, and policymakers that want to promote sustainable financial practices  and , eventually, strengthen Pakistan's financial system.