Published Online:September 2025
Product Name:The IUP Journal of Financial Risk Management
Product Type:Article
Product Code:IJFRM040925
DOI:10.71329/IUPJFRM/2025.22.3.50-59
Author Name:Deepika Pal, Abhishek Danu and Rakesh Kumar Pal
Availability:YES
Subject/Domain:Finance
Download Format:PDF
Pages:50-59
The behavior of households in India in terms of investment exhibits a distinct interaction between culture and traditional wisdom and modern financial decision-making. This paper examines the effect of Indian Knowledge Systems (IKS)—specifically the ideas of Dharma (ethical duty) and Artha (material prosperity)—on household portfolio decisions in the context of behavioral finance. In contrast to neoclassical finance, where rationality and utility maximization are promoted, Indian household businesses tend to be based on the value of traditions and mental accounts, including setting money aside to conduct a ritual, security and intergenerational wealth transfer. These are socioreligiously determined and risk-based practices responsive to cognitive biases, such as loss aversion and over-focusing on physical property. This paper uses a combination of IKS and behavioral finance theories and suggestions to support the idea that decision-making in Indian households cannot be described as irrational but as context-specific and rational based on cultural and spiritual ideas. This theoretical synthesis has added relevance to the inclusion of indigenous knowledge into modern financing perceptions by enhancing the theoretical frames of reference and offering articulate culture-responsive reactions to the stringent portfolio diversification behaviors, gender household reductions, and accessibility to finance.
Household consumption has been a topic of interest to financial, economic and sociological researchers because it defies the propositions of rational choice theory. The modern portfolio theory concerns diversification, maximization of returns and sound decision making (Markowitz, 2008).