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Do behavioural biases shape personal financial decisions: a structural equation modelling (SEM) approach

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  • Ajaz Ul Islam

Abstract

The study investigated the impact of behavioural biases on personal financial decision-making by applying partial least square structural equation modelling (PLS-SEM). Specifically, it investigated the impact of cognitive and emotional biases on personal financial decisions and analysed the interconnections between cognitive and emotional behavioural biases and personal financial decisions. The findings suggest that behavioural biases significantly impact personal financial decisions and, if ignored, can lead to significant losses while making financial decision-making (Chaudhary, 2013). Both cognitive and emotional biases inferred a significant negative impact on personal financial decisions. Thus, it is inferred that individual behaviour significantly influences financial decisions. The inferences from the study can be used by financial advisors and planners to understand their client's decision-making processes and develop strategies to mitigate the negative impacts. Policymakers can recommend educational programs to improve financial literacy to help individuals make more rational financial decisions.

Suggested Citation

  • Ajaz Ul Islam, 2025. "Do behavioural biases shape personal financial decisions: a structural equation modelling (SEM) approach," International Journal of Behavioural Accounting and Finance, Inderscience Enterprises Ltd, vol. 7(4), pages 384-412.
    • Handle: RePEc:ids:ijbeaf:v:7:y:2025:i:4:p:384-412
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