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

Authors: Ajaz Ul Islam

Addresses: Department of Humanities, Social Science, and Management, National Institute of Technology (NIT), Srinagar, J&K, 190006, India

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.

Keywords: cognitive biases; emotional biases; herding bias; financial decisions; personal finance.

DOI: 10.1504/IJBAF.2025.150269

International Journal of Behavioural Accounting and Finance, 2025 Vol.7 No.4, pp.384 - 412

Received: 12 Feb 2025
Accepted: 18 Apr 2025
Published online: 05 Dec 2025 *

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