Beliefs that provide a foundation for heuristics and biases in financial decision-making
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Published
31-05-2023
Claudine Moya-Ponce
Pilar Madrazo-Lemaroy
Facultad de Ciencias Económicas y Empresariales, Universidad Panamericana, Campus México. Augusto Rodin No. 498, Insurgentes Mixcoac, Benito Juárez, 03920 Ciudad de México, México
https://orcid.org/0000-0003-1847-4063
Pilar Madrazo-Lemaroy
Facultad de Economía y Negocios, Universidad Anáhuac México. Avenida Universidad Anahuac No. 46, Col. Lomas Anahuac, Huixquilucan, 52786, Estado de México, México
Abstract
Heuristics and biases are the result of intuitive thinking, which is shaped starting from intuitions, feelings, and impressions, which later emerge as beliefs once processed through analytical thinking. In this study, we examine beliefs that provide a foundation for heuristics and biases in financial decision-making through in-depth interviews with 31 upper-class Mexican emerging adults. We found feelings of mistrust that provide a foundation for foreign bias, non-herding behavior and reliance on professional advice, as well as lower-risk investing beliefs that then drive sustainable investing. We also found reflection that their money, in light of their narrative is either saved or invested regardless of its source and that lenders were framed as investors to avoid the shame they associate with borrowing. Implications for future research, educational interventions and providers of financial services are discussed.
How to Cite
Moya-Ponce, C., & Madrazo-Lemaroy, P. (2023). Beliefs that provide a foundation for heuristics and biases in financial decision-making. Cuadernos De Gestión, 23(2), 69–80. https://doi.org/10.5295/cdg.221703pm
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Keywords
Heuristics, Herding, Foreign-bias, Sustainable investing, Expert advice, Mexico
References
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Blasco, N., Corredor, P., & Ferreruela, S. (2017). Can agents sensitive to cultural, organizational, and environmental issues avoid herding? Finance Research Letters, 22, 114-121. https://doi.org/10.1016/j.frl.2017.01.006
Bondia, R., Biswal, P. C., & Panda, A. (2021). Investigating association between factors fostering attention to a stock and rationales to buy it: an empirical analysis. Review of Behavioral Finance, 14(5), 886-899. https://doi.org/10.1108/RBF-05-2021-0082
Bouri, E., Gupta, R., & Roubaud, D. (2019). Herding behaviour in cryptocurrencies. Finance Research Letters, 29, 216-221. https://doi.org/10.1016/j.frl.2018.07.008
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Cooper, I. A., Sercu, P., & Vanpée, R. (2018). A measure of pure home bias. Review of Finance, 22(4), 1469-1514. https://doi.org/10.1093/rof/rfx005
Corbet, S., Lucey, B., & Yarovaya, L. (2018). Datestamping the Bitcoin and Ethereum bubbles. Finance Research Let-ters, 26, 81-88. https://doi.org/10.1016/j.frl.2017.12.006
Coronel-Pangol, K., Orden-Cruz, C., & Paule-Vianez, J. (2022). Bibliometric analysis of alternative financing for entre-preneurship. Cuadernos de Gestión, 22(2), 167-182. https://doi.org/10.5295/cdg.211559kc
Datta, S., & Mullainathan, S. (2014). Behavioral design: a new approach to development policy. Review of Income and Wealth, 60(1), 7-35. https://doi.org/10.1111/roiw.12093
Dodd, O., & Frijns, B. (2015). Cross-listing decisions and the foreign bias of investors. Finance Research Letters, 15, 160-166. https://doi.org/10.1016/j.frl.2015.09.006
Drever, A. I., Odders‐White, E., Kalish, C. W., Else‐Quest, N. M., Hoagland, E. M., & Nelms, E. N. (2015). Foundations of financial well‐being: Insights into the role of executive function, financial socialization, and experience‐based learning in childhood and youth. Journal of Consumer Affairs, 49(1), 13-38. https://doi.org/10.1111/joca.12068
Fernandes, D., Lynch Jr, J. G., & Netemeyer, R. G. (2014). Financial literacy, financial education, and downstream financial behaviors. Management Science, 60(8), 1861-1883. https://doi.org/10.1287/mnsc.2013.1849
Foerster, S., Linnainmaa, J. T., Melzer, B. T., & Previtero, A. (2017). Retail financial advice: does one size fit all? The Journal of Finance, 72(4), 1441-1482. https://doi.org/10.1111/jofi.12514
Furnham, A. (1999). The saving and spending habits of young people. Journal of economic Psychology, 20(6), 677-697. https://doi.org/10.1016/S0167-4870(99)00030-6
Garcia, M. J. R. (2013). Financial education and behavioral finance: new insights into the role of information in financial decisions. Journal of economic surveys, 27(2), 297-315. https://doi.org/10.1111/j.1467-6419.2011.00705.x
Gennaioli, N., Shleifer, A., & Vishny, R. (2012). Neglected risks, financial innovation, and financial fragility. Journal of Financial Economics, 104(3), 452-468. https://doi.org/10.1016/j.jfineco.2011.05.005
Geranio, M., & Lazzari, V. (2019). Stress testing the equity home bias: A turnover analysis of Eurozone markets. Journal of International Money and Finance, 97, 70-85. https://doi.org/10.1016/j.jimonfin.2019.06.002
Gevlin, K. (2007). The coming of age of socially responsible investing. Financial Planning, 37(8), 56.
Gigerenzer, G., & Todd, P. M. (1999). Fast and frugal heuristics: The adaptive toolbox. In Simple heuristics that make us smart (pp. 3-34). Oxford University Press.
Hanson, T. A., & Kalthoff, J. (2019). Financial literacy, naïve diversification, and security selection. Journal of Applied Financial Research, 1, 69-86.
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