Effect of Behavioural Biases on the Financial Decisions of Rural Women Micro-entrepreneurs: A Scale Development Approach

Abstract

The basic purpose of this article is to understand the impact of behavioural biases on the financial decisions of the rural women micro-entrepreneurs. The indicators were selected based on the literature review and exploratory interview, and in consultation with the experts of the funding agencies (mainly banks) to cover behavioural biases of the rural women micro-entrepreneurs. In order to design the scale, SEM AMOS 26 software along with SPSS 26 was used for data analysis. Reliability score and exploratory factor analysis were conducted with the help of SPSS 26 software. Overconfidence of the rural women micro-entrepreneurs negatively influenced their financial decisions. Rural women micro-entrepreneurs were found to be better financial decision-makers as past loss from their financial decisions did not deter them from taking risk. The loss aversion bias did not influence the financial decisions of the rural women micro-entrepreneur. However, the regret aversion bias and the anchoring bias positively influence their financial decisions, depicting the impact of behavioural biases on their financial decisions. The present study can be further extended to identify the impact of moderating and mediation variables. The impact of other emotional and cognitive behavioural biases on the financial decisions of the rural women micro-entrepreneurs can also be considered. The understanding of impact and the effect of behavioural biases on financial decisions of rural women micro-entrepreneurs will help to identify the rationale behind financial decision-making of the rural women micro-entrepreneurs. Most of rural women micro-entrepreneur has to deal with decisions related to finance. The confidence with which they handle their money is a reflection on how confidently they can handle their business. The present study attempts to design and validate a comprehensive behavioural bias scale influencing financial decisions of the rural women micro-entrepreneurs. To the best of the knowledge of the author, almost no studies have focused adequately to explore the influence of behavioural biases on the financial decisions of women micro-entrepreneurs. Thus, the aim of this research is to understand the influence of behavioural biases on the financial decisions of rural women micro-entrepreneurs and design a robust and comprehensive scale.