Behavioural Finance: Providing a Helping Hand in Understanding Individuals Financial Behavioural

Abstract

Behavioural economics currently addresses the human insights that are missing from classic economic theory such as: heuristics, framing and market inefficiencies. As people are prone to economic decision-making errors it is imperative to pay attention and to examine cognitive, emotional and subjective factors that can influence the decision-making process. An area related to behavioural economics is that of behavioural finance which attempts to explain the set of psychological aspects and biases that affects financial decisions. The current research explores the influence context effects have on the economic decision making process in two different situations: crisis and no-crisis. A context effect is an aspect of cognitive psychology that describes the influence of environmental factors on one's perception of a stimulus and can have an important impact on our decisions. The paper finds that once the crisis has occurred, Romanians were influenced by the negative economic context, so a context effect could be observed. The financial decisions as regard to loans and deposits were also influenced by the interest rate level and earnings