Behavioral Finance and Entrepreneurial Decision-Making: An Empirical Study in Gjirokastra, Albania

Abstract

This study explores the influence of behavioral finance factors specifically cognitive biases and risk perception, on the decision-making processes of entrepreneurs in Gjirokastra, Albania. Using a mixed-methods approach, the research integrates experimental simulations, surveys, and in-depth interviews with 15 local entrepreneurs. The study identifies prevalent cognitive biases such as overconfidence, anchoring, and confirmation bias, and assesses their impact on financial decision-making. Additionally, it examines entrepreneurs' risk perception and its influence on their decision-making strategies.

The findings reveal a significant presence of cognitive biases, with overconfidence being the most common among participants. Despite this, a moderate level of risk perception was predominant, suggesting a balanced approach to risk-taking influenced by personal experiences and cultural norms. Experimental simulations highlighted a tendency towards risk-averse decision-making, contrasting with the self-reported overconfidence bias.

The research contributes to the understanding of the complex relationship between psychological factors and entrepreneurial behavior in an emerging economy context. The insights gained from this study are pertinent for entrepreneurs, financial institutions, and policymakers, providing a foundation for developing more effective financial strategies and support mechanisms in Gjirokastra and similar environments. This study not only enriches the academic discourse in behavioral finance and entrepreneurship but also offers practical implications for enhancing entrepreneurial success in emerging economies.