Logo image
Back
Impact of Cognitive Biases on Decision Making by Financial Planners: Sunk Cost, Framing and Problem Space
Journal article   Open access   Peer reviewed

Impact of Cognitive Biases on Decision Making by Financial Planners: Sunk Cost, Framing and Problem Space

Gregory Laing
International Journal of Economics and Finance, Vol.2(1), pp.11-22
2010
DOI: https://doi.org/10.5539/ijef.v2n1p11
pdf
PDF - Published Version (Open Access)252.31 kBDownloadView
Published VersionPDF - Published Version (Open Access)CC BY V3.0,  Open Access
url
https://doi.org/10.5539/ijef.v2n1p11View
Published Version

Abstract

Accounting, Auditing and Accountability framing effect sunk cost effect decision-making prospect theory image theory
The aim of this paper is to test the existence of the framing effect and sunk cost effect whilst examining the influence ofcognitive factors. The approach to this research involved combing two frameworks, Prospect Theory and ImageTheory, to analyse the outcomes of financial decision making from a survey of financial planners. The findings confirmthe existence of the framing effect and a sunk cost effect. In particular the lowering of the amount of sunk cost produceda higher mean funding outcome than that attained in the positive frame. With regards to cognitive factors a significantcorrelation between perception of responsibility and the amount of funding granted was identified. This is consistentwith the existence of escalation commitment behaviour, which is considered to be a manifestation of feelings ofresponsibility. The perception of the problem space produced an unexpected set of results. In particular both low imagecompatibility and high image compatibility were significant predictors of the level of funding granted.

Details

Metrics

211 File views/ downloads
866 Record Views
Logo image