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Abstract
People often face constraints such as lack of time or information in taking decisions, which leads them to heuristics. Heuristics are useful to take some shortcuts in order to decide faster and with fewer resources, even if that leads to suboptimal decisions. When applied to financial markets, the Recognition Heuristic predicts that investors acquire the stocks that they are aware of. The Recognition Heuristics state that an individual, when facing the challenge to choose between two objects and he is familiar with only one of the objects, the individual would always choose the object that he is familiar with. The concept of Recognition Heuristics has its origin on the psychology and intends to be a fast and frugal way of thinking to take decisions on a bounded rationality scenario. Volatility has become the order of the day. The kind of volatility we have witnessed in the Indian Equity market in recent times is unprecedented. Even though this study is limited to the investments in security markets, it is true with other assets like gold, currencies, real estate etc. This leaves the Indian investors baffled at times. The main objective of this study is to study various factors leading the investors to adopt recognition heuristics in investment decisions and also find which factor influences more. There are limited studies in the area of behavior finance in India, especially the relationship between Recognition Heuristics and investment decisions. The study begins with the existing factors of Recognition Heuristics in behavioral finance, based on which, hypothesis are proposed.