Main Article Content

Ulfi Kartika Oktaviana


Behavioral economics emphasizes the importance of empirical evidence and facts that contradict traditional economic assumptions. Several empirical studies have shown that individuals are prone to systematic bias in decision-making, as they do not always make decisions that are in their best interest. Behavioral Economics and Behavioral Finance aim to incorporate psychological aspects into the decision-making process, although it focuses on financial decisions and financial markets. This paper aims to describe the concept of economic behavior and its relation to financial behavior in decision-making using a literature survey. Behavioral economics and behavioral finance involve the science of psychology to study economics and finance, explaining that human biases can influence people's financial decision-making. This paper examines some of the behavioral biases that usually occur in investor decision-making, such as heuristics, overconfidence, mental accounting, and loss aversion, etc. and each of them shows their own representation and the way they influence decision-making

Article Details

How to Cite
OKTAVIANA, Ulfi Kartika. BEHAVIORAL ECONOMICS AND BEHAVIORAL FINANCE IN DECISION MAKING. Proceedings of the International Conference of Islamic Economics and Business (ICONIES), [S.l.], v. 9, n. 1, p. 731-744, aug. 2023. ISSN 2541-3333. Available at: <>. Date accessed: 17 apr. 2024.


Altman, M. (2004). “The Nobel Prize in Behavioral and Experimental Economics: a Contextual and Critical Appraisal of the Contributions of Daniel Kahneman and Vernon Smith,” Review of Political Economy, 16: 3-41

Altman, M., 2012. Behavioral economics for dummies. New York: John Wiley and Sons
Alm, J., & and C. Bourdeaux, 2013. Applying behavioral economics to the public sector. Review of Public Economics, 206(3): 91–134. View at Publisher

Asri, M. (2013). Behavioral finance. Yogyakarta: BPFEYogyakarta.

Baker, H.K, and Nofsinger, J.R. (2010). Behavioral finance: investors, corporations, and markets. New Jersey: John Wiley & Sons, Inc

Barberis, N., 2018. Richard Thaler and the rise of behavioral economics. Retrieved from [Accessed April 20, 2018]

Benartzi, S. and Thaler. R, (1995). Myopic loss-aversion and the equity premium puzzle.
Quarterly Journal of Economics 110 (1), pp.73-92

Benartzi, S. and Thaler, R.H. (2002) How much is investor autonomy worth? The Journal of Finance 57(4): 1593–1616.

Brzezicka, J. and R. Wisniewski, 2013. Homo oeconomicus and behavioral economics. Contemporary Economics, 8(4): 353–364

Creswell, John W. 2014. Research design pendekatan kualitatif, kuantitatif, dan mixed. Yogyakarta : Pustaka Pelajar

Chira, Adams and Thornton (2008), Behavioral bias within the decision making process,

Journal of Business & Economics Research, Volume 6, pp. 11-20

Chetty, R., 2015. Behavioral economics and public policy: A pragmatic perspective. American Economic Review: Papers & Proceedings, 105(5): 1-33. View at Google Scholar | View at Publisher

Congdon, W., J. Kling and S. Mullainathan, 2011. Policy and choice – public finance through the lens of behavioral economics. Washington, D.C: The Brookings Institution Press

DellaVigna, S., 2009. Psychology and economics: Evidence from the fiel. Journal of Economic Literature, 47(2): 315–372. View at Google Scholar | View at Publisher

Diamond, P.A. and Hausman, J.A. (1984) Individual retirement and savings behavior. Journal of Public Economics 23(1):81–114

Earl, P.E., 2018. GLS Shackle’s introspective behavioral economics. Journal of Behavioral Economics for Policy, 2(1): 19–23. View at Google Scholar

Espin, A.M., F. Reyes-Pereira and L.F. Ciria, 2017. Organizations should know their people: A behavioral economics approach. Journal of Behavioral Economics for Policy, 1(S): 41–48. View at Google Scholar

Fama, E.F. (1970) Efficient capital markets: a review of theory and empirical work. The Journal of Finance 25(2): 383–417.

Fama, E.F. and French, K.R. (1993) Common risk factors in the returns on stocks and bonds. Journal of Financial Economics 33(1): 3–56.

Fama, E. (1998) Market efficiency, long-term returns, and behavioral finance. Journal of Financial Economics 49(3): 283–306

Fuller, R. J., (2000). Behavioral finance and sources of Alpha, Journal of Pension plan
investing, volume. 2, No.3

Furnham, A. and Boo, H, C (2011), A literature review of the anchoring effect, Journal
of Social-Economics, Volume 40(1), pp. 35-42

Hirschey, M., & Nofsinger R. J. (2008). Investment: Analysis and behavioral. New York, NY: McGraw-Hill/Irwin

Hursh, S.R. and P.G. Roma, 2013. Behavioural economics and empirical public policy. Journal of the Experimental Analysis of Behavior, 99(1): 98–124. View at Google Scholar | View at Publisher

Kanter, R.M. The change masters. & Schuster, 1983). (New York: Simon)

Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47(2), 263–291. doi:10.2307/1914185

Kahneman. D and Tversky. A, (1981). The framing of decisions and the psychology of
choice. Science 211, pp

Kahneman, D., 2002. Maps of bounded rationality: A perspective on intuitive judgment and choice. Price lecture. Retrieved from sciences/laureates/2002/kahnemann-lecture.pdf [Accessed January 10, 018].

Kumar, S. and Goyal, N. (2015) Behavioural biases in investment decision making—a systematic literature review. Qualitative Research in Financial Markets 7(1): 88–108.

Laibson, D. and J.A. List, 2015. Principles of (Behavioral) economics. American Economic Review, 105(5): 385–390. View at Google Scholar | View at Publisher

Levlnson, D. The seasons of a man's life. (New York: Alfred A. Knopf, 1978).

Makrehchi, M., Shah, S., & Liao, W. (2013). November). Stock prediction using event-based sentiment analysis. In Web Intelligence (WI) and Intelligent Agent Technologies (IAT), 2013 IEEE/WIC/ACM International Joint Conferences (Vol. 1, pp. 337–342). IEEE.

McElroy, T., and Dowd, K., (2007). Susceptibility to anchoring effects: how openness toexperience influences responses to anchoring cues. Judgment and Decision Making 2, pp.48–53

Meyer, J. W., & Rowan, B. (1977). Institutional organizations: Formal structure as myth and ceremony.American Journal of Sociology, 83, 929-984.

Mowen, M.M., Mowen, J.C., (1986). An empirical examination of the biasing effects of
framing on business decisions. Decision Sciences 17, pp.596-602

Moon, P. , Keasey, K. and Kuxbury, D. (1997), Mental accounting and decision making:
the relationship between relative and absolute saving, Journal of Economics Behavior &Organization, volume 38, pp. 145-153

Mitchell, O.S. and Utkus, S.P. (2003) Lessons from Behavioral Finance for Retirement Plan Design (October 2003). PRC Working Paper No. 2003-6

Pereira, C.M., 2016. Reviewing the literature on behavioural economics. Capital Markets Law Journal, 11(3): 414–428. View at Google Scholar | View at Publisher

Rabin, M., (1996). Psychology and Economics, Journal of Economic Literature, volume
36(1), pp.11-46

Ranyard, R., and Abdel-Nabi, D., (1993). Mental accounting and the process of multiattribute choice. Acta Psychological 84, pp. 161-177

Savage, L.J., (1954). The Foundations of Statistics. Wiley, New York.

Schwartz, H., (2010). Heuristics (Rules of Thumb) Behavioral Finance: Investors, Corporations, and Markets, Chapter 4, H. Kent Baker, John Nofsinger, eds., (2010) John Wiley and Sons.

Schade, C. and Koellinger, P. (2007) Heuristics, biases, and the behavior of entrepreneurs. In M. Minniti (ed.), Entrepreneurship: The Engine of Growth, Vol. 1 (pp. 41–63). Westport, CT: Praeger)

Sha, N., & Ismail, M. Y. (2020). Behavioral investor types and financial market players in Oman. Journal of Asian Finance, Economics, and Business, 8(1), 285–294. https://doi. org/10.13106/jafeb.2021.vol8.no1.285

Shefrin, H. (2001), Behavioral corporate finance. Journal of Applied corporate finance. Volume 14(3)

Shefrin, H. (2007) Behavioral Corporate Finance. Decisions that Create Value. McGrawHill/Irwin. New York.

Shleifer, A. (2004). Inefficient markets: an introduction to behavioral finance. New York: Oxford University Press Inc

Shefrin, H., and Statman, M. (1984). Explaining investor preference for cash dividends. Journal of finance economics (13), pp. 253-282

Shleifer, A. and Summers, L.H., (1990). The noise trader approach to finance, Journal of Economic Perspectives 4, pp.19-33.

Shiller, R.J. (2003) From efficient markets theory to behavioral finance. The Journal of Economic Perspectives 17(1): 83–104.

Simon, H.A., 1978. Rational decision-making in business organizations. Nobel memorial lecture. Retrieved from [Accessed January 8, 2018]

Sunstein, C.R., 2018. The rise of behavioral economics: Richard Thaler’s misbehaving. Journal of Behavioral Economics for Policy, 2(1): 53–57.

Subash, R. (2012). Role of behavioral finance in portfolio investment decision: Evidence from India [Master Thesis, Charles University in Prague]. detail/110165/?lang=en

Thaler, R.H. and Shefrin, H.M. (1981) An economic theory of self-control. Journal of Political Economy 89(2): 392–406

Thaler, R.H. and C.R. Sunstein, 2003. Libertarian paternalism. American Economic Review, 93(2): 175–179.

Tversky, A. and Kahneman, D. (1974) Judgment under uncertainty: heuristics and biases. Science 185(4157): 1124–1131.

Tversky, A. and Kahneman, D. (1981) The framing of decisions and the psychology of choice. Science 211(4481): 453–458.

Timmons, J.A., Smollen, L.E. & Dingee, A.L., Jr. New venture creation: A guide to entrepreneurship (2nded.) (Honewood, IL: Richard D. Irwin, Inc., 1985).

Timmons 5. K.H. Vesper (Eds.) Frontiers of entrepreneurship research (Wellesley, MA: Center for Entrepreneurial Studies, 1984) pp. 159-174.

Tsai T., Young, M.N., & Cheng, B., Confucian business practices and firm
competitiveness: The case of Sinyi Real Estate, 2011.