Behavioral Biases and their Influence on Financial Decisions: An Analysis of Social Entrepreneurship in a Medium-Sized City

Abstract

In recent years, entrepreneurship has been an alternative economic livelihood that independently seeks to generate employment and in turn the economic growth of countries. Social entrepreneurship is a topic of great importance in recent research, however, there is still not enough empirical evidence to analyze the rationality of decision making. Given the social factor they pursue, it is possible that they may be affected by behavioral distortions that influence their rationality, especially in three financial aspects: investment, savings and indebtedness. Therefore, the objective of this work is to determine the existing influence between behavioral biases and financial decision making of social enterprises in the canton of Cuenca. The study is a descriptive-correlational cross-sectional approach, using structural equations from Partial Least Squares (PLS). The sample obtained is 162 social enterprises. The results show a significant positive influence of overconfidence, procrastination, status quo, and negative influence of over optimism on investment decisions. Also, procrastination and status quo directly influence savings decisions, but the gambler's fallacy indirectly. On the other hand, the risk aversion, overconfidence, over optimism and status quo biases were significantly influenced on borrowing decisions