## 2 Cognitive Biases in the Stock Market: Literature Review  
This section presents and discusses the most commonly observed cognitive biases that occur in the decision-making process of stock exchange investors. Those mental effects are the basis of this study and are empirically tested in the analytical part of this paper. Cognitive bias can be defined as a systematic error in the thought process that occurs when people handle and interpret the data and knowledge at their disposal, affecting their judgements and conclusions [3]. Even though the human brain is well developed and highly complex, it is nevertheless subject to limitations. Cognitive biases are often the result of the brain's attempt to automate the processing of information and make the interpretation of such information more understandable and straightforward. However, there are some situations in which these biases have a substantial impact on the decision-making process, which is the main focus of this study. This study considers the seven most common fallacies that investors in the stock market commit in their financial decisions: confirmation bias, loss aversion, gambler's fallacy, availability cascade, hot hand fallacy, the bandwagon effect, and the Dunning-Kruger effect. These fallacies are the central focus of the paper. They are discussed below and addressed in a further part of the study in the form of a questionnaire. There also exists a number of other fallacies which were not covered in this text: mental accounting, adjustment bias, affinity bias, anchoring bias, cognitive dissonance bias, herd behaviour bias, hindsight bias, the illusion of control, incentive-caused bias, limited attention span (or bounded rationality), neglect of probability, outcome bias, overconfidence bias, oversimplification tendency, recency bias, a paradox of choice, regret bias (or endowment bias), representativeness bias, restraint bias, self-attribution bias, self-control bias, and snakebite effect. A wider list can be found in [3]. **Confirmation bias--**following [18], \"confirmation bias is the tendency to seek out information that supports our beliefs and ignore information that contradicts them.\" In the stock market, it is likely that investors overlook information that is not entirely aligned with their ideas, especially when they acquire information that confirms their beliefs. However, through comprehensive research, [PERSON] [19] has shown that even simply asking confirmatory questions can lead to a false sense of confirmation among investors. Investors' reactions to good and bad information depends on their attitudes; pessimistic investors undervalue good news and over-react to bad news. Conversely, optimistic investors over-react to good news and respond too optimistically to bad news [20]. This diversity in the handling of information causes deep divisions among traders and may explain particularly diverse behaviours in stock markets [21]. This cognitive bias was addressed in Q7 of the survey: \"If you hear that the company which you invested in is on the verge of declaring bankruptcy, you consider selling your stocks\". **Loss aversion** is observed among investors who must choose between guaranteed, low-return investments and riskier, high-return investment. As [PERSON] and [PERSON] [22] have shown in their experiments (confirmed recently in [23]), such investors are more sensitive to losses than gains. This leads to numerous perspectives on every individual choice and asset price in stock markets. Loss aversion influences the financial markets by impacting the risk attitudes of investors. It essentially occurs when investorscontinue to hold onto losing investments for much longer than they should and end up suffering much more significant losses than they otherwise would have. Investors do not acknowledge a loss as being such until it is realised; they can avoid mentally and emotionally coming to terms with the truth of their loss as long as they have not yet closed out the trade.