Behavioural biases in personal finance

Merle van den Akker and Emily Daniels

Chapter 5 in Research Handbook on Personal Finance, 2026, pp 66-84 from Edward Elgar Publishing

Abstract: Behavioural economics merges psychology and economics to explore systematic deviations in financial decision-making from traditional economic models. This chapter examines key biases such as mental accounting, present bias, planning fallacy, and misunderstanding of risk, which influence spending, saving, investing, and insuring decisions. Demonstrating the interplay of cognitive biases and heuristics highlights why individuals make suboptimal choices despite financial literacy and resource capacity. Strategies like goal-setting, commitment devices, and education interventions are evaluated, focusing on their limitations and potential for addressing these biases. The chapter concludes by emphasising the need for systemic changes, such as policy-level interventions and financial regulation, to complement behavioural interventions and address structural barriers to better financial decisions. Future research directions are suggested, including tailoring interventions, exploring technology's role, and integrating systemic solutions to support sustainable financial well-being.

Keywords: Behavioural economics; Financial decision-making; Mental accounting; Present bias; Planning fallacy; Risk perception (search for similar items in EconPapers)
Date: 2026
ISBN: 9781035323005
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