Integrating Behavioural Biases into Portfolio Optimisation: A Systematic Literature Review and Bibliometric Analysis

Abstract

Behavioural finance has evolved into a significant field of study that challenges traditional financial theories, which are based on fully rational investors and efficient markets. This research conducts a systematic literature review and bibliometric analysis of 72 peer-reviewed studies published between 2014 and 2024, examining the convergence of behavioural finance and portfolio optimisation. The literature selection followed the PRISMA framework, while Biblioshiny and VOS viewer were used to perform bibliometric mapping and thematic analysis. A Theory Construct Methodology (TCM) approach was adopted to identify prevailing theoretical foundations, behavioural constructs, and methodological patterns in existing research. The results indicate a steady rise in scholarly interest, highlighting emerging themes such as behaviourally adjusted optimisation models, bee colony algorithms, and the incorporation of psychological biases into portfolio decision-making. Keyword co-occurrence and thematic analysis reveal four major research clusters: Portfolio Optimisation and Risk Management, Behavioural and Market Dynamics, Asset Allocation and Behavioural Finance, and Computational and Optimisation Techniques. Prominent theoretical perspectives include prospect theory, overconfidence, and loss aversion. The study provides practical implications for both investors and policymakers. Investors may improve risk-adjusted returns by incorporating behavioural insights into investment strategies, while policymakers can leverage these findings to encourage rational investment behaviour and mitigate market inefficiencies. Overall, this review offers a structured and comprehensive foundation for future research in the evolving area of behavioural portfolio optimisation.