Investigating Students’ Behavioral Biases in Regard to Financial Decision-Making

Abstract

The purpose of this paper is to examine the factors influencing the appearance of biases in the behavior of university students. The studied biases are herding behavior, overconfidence, mental accounting, loss-aversion, anchoring and introspection. Three main assumptions were formulated, one regarding the relationship between the biases and financial knowledge, another related to the impact of gender, and the third one presuming a possible explanatory power of the Cognitive Reflection Test results in relation with the heuristics. The findings present evidence regarding the significant influencing power of financial knowledge on the behavior of university students from Cluj-Napoca, suggesting that this aspect could be a possible solution in order to diminish the negative effects of some of the behavioral biases examined. Besides the importance of financial knowledge, the results emphasis the explanatory power of gender when considering the errors of herding, overconfidence, mental accounting and loss-aversion, showing that men tend to be more influenced by these errors. The third assumption proved to be false, indicating that the performance of students at the Cognitive Reflection Test does not have a great impact on the presence of the examined biases.