A systematic review of ordinary people behavioural financial biases

Recently, Behavioural Finance and Behavioural Economics are together fast-growing fields of research, which enclose both academics and business.

In short, Behavioural Economics derives from behavioural psychology new theories and pieces of evidence for individual choices and decision-making. The basic principles of traditional finance, like the rational behaviour of markets and participants, are defied under Behavioural Finance to explain markets and investors´ current anomalies, caused by biases in decision-making. Theories like prospect theory, mental accounting, disposition effect, overconfidence, anchoring and some others assist to explain the biases´ causes.

The volume of papers published related to Behavioural Finance has climbed exponentially since 2010, both with top referenced journals and other less referenced publications. However, a good number of published papers are analysing the behaviour of financial markets and institutional investors, with reduced scope for individual and non-financial investors, like ordinary consumers. Specifically, this group remains less researched and constitutes our focus. The purpose of this paper is, therefore, to study the biases in decision-making by ordinary investors, also considering socio-economic variables.

The existing effort in publications in this line of research has produced a ample amount of literature that requires analysis and research of the constructs of the field and associated sub-fields including socio-economics links. Thus, our goal consists of systematically reviewing existing literature on Behavioural Finance and revealing the current state-of-the-art and different sub-lines within this topic. We do so by applying systematic review tools and meta-analysis.

In management research searching for literature reviews should be broad in terms of sources keeping a balance between breadth and depth, including not only databases of published journals but also going beyond major bibliographical databases to increase the effectiveness. Frequently the quality rating of the journals is used as the first criteria in the search. Over the resulting literature database, Inclusion and Exclusion criteria are used to produce the final cases to be analyzed in the text and keywords analysis.

We sourced information primarily from WOS-Clarivate data base. The search provided 883 studies in total, from 2009 to 2019. After cleaning the dataset, 266 publications remained for the analysis. The output of the analysis consisted of compiled tables, frequency and cross-tabulation, corresponding to the 18 types of biases and 18 socioeconomic variables.

In as much as the study was targeted to discover the type of behavioural biases and constructs that exhibit the ordinary investor's group, it was found that the evidence in the literature was mixed with those of the institutional investors. On the other hand, the socio-economic evidence about gender, age, studies, and geography in the literature review are short, limited and partial, being Far-East the more present citation.

The results emerging from this review provide a first insight into the behavioural finance biases and socio-economic links of ordinary people based on the most recent publications. They should enlighten more extended studies given the importance of the ordinary people as a general reference for the economy.

The authors of this paper are part of ESIC COMAD research group (Marketing and Digital Commercialization), was created in June 2020 to respond to the needs of different economic sectors such as agribusiness and finance. Currently this group is composed of members from the Universities of Évora (Portugal), Universidad Polítécnica de Madrid, Universidad Complutense de Madrid and ESIC Business and Marketing School.

It is a multidisciplinary group from the Iberian Peninsula that develops work on behavioral finance, consumption habits before and after the pandemic (COVID-19), and food distribution chains in the fishing and wine tourism sectors.

• J.F. Calzadilla
• M.J. Bordonado-Bermejo
• E. González-Rodrigo