The role of cognitive bias in financial decision-making under financial scarcit

Abstract

Financial scarcity affects cognitive biases and financial decision-making. Moreover, cognitive biases impact the financial decision-making process. Therefore, the dissertation explores the mediating role of cognitive biases4present bias, optimism bias, and loss aversions4in financial decision-making under financial scarcity. The dissertation is based on a quantitative correlational design. It uses an online survey to test different hypotheses. The survey gathered 123 valid responses and focused on financial scarcity, present bias, optimism bias, loss aversion, and financial decision-making. A mediating model was used to analyze how these cognitive biases mediate the impact of financial scarcity on financial decision-making. The results show that optimism mediates the relationship between financial scarcity and financial decision-making. Financial scarcity has a negative relationship with optimism, which, in turn, is positively associated with financial decisions. Present bias and loss aversion do not show any mediating role between financial scarcity and financial decision-making. Additionally, financial literacy and gender significantly affect financial decision-making, with higher financial literacy leading to better decisions. Moreover, the dissertation highlights the importance of improving financial literacy and addressing gender differences to improve financial outcomes. Future research should include a wider spectrum of cognitive biases to further explore these relationships.

Date of Award	3 Jul 2024
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Cristina Mendonça (Supervisor)