Policy Analysis of Individual Financial Planning Affected by Personal Bias Factors in Indonesia

Abstract

Even in making individual financial decisions, humans will naturally still be affected by personal biases which leads to less than optimal, illogical, and irrational decisions. It will be an important issue due to individual financial decisions which accumulate as a whole country's economic performance. This research introduces the idea to combine personal biases stated in behavioral economic theory with individual financial decision models using a system dynamics approach. The research uses vignette a fractional factorial studies method to calculate the score of personal bias factors. The main findings of the research show that there is a positive feedback loop on individual financial planning which is influenced by personal biases. The research concludes that personal bias factors such as the hedonic editing effect, future spending, category budgeting, endowment effect, and house-money effects are important factors in individual financial planning. Thus, paying attention to these personal biases then may help policy maker to control saving, spending, and investment rates in Indonesia.