ABSTRACT
Behavioral finance has emerged as a transformative discipline by integrating psychological insights into financial decision-making and challenging traditional economic ideas. Behavioral finance provides an advanced comprehension of how social factors, emotions, and cognitive biases affect financial habits, organizational decisions, and market results in banking and management. This research examines the role of behavioral finance in enhancing decision-making processes within different businesses. Behavioral finance in banking highlights the influence of biases such as herd mentality, loss aversion, and overconfidence on risk assessment, loan decisions, and investment choices. It underscores the need of understanding customer behavior to develop products and services that meet various risk tolerances and financial needs. Banks may enhance customer financial literacy, refine user experience, and foster sustainable financial habits through the application of behavioral insights. Behavioral finance contributes to management by facilitating resource allocation, performance evaluation, and strategic planning. Biases such as anchoring and confirmation bias are prevalent among managers and can distort evaluations, leading to suboptimal decisions. To mitigate these risks, behavioral frameworks advocate for the implementation of debiasing tools such as scenario analysis and structured decision-making. Furthermore, they advocate for the establishment of incentive programs that align individual ambitions with organizational objectives. Integrating behavioral finance into banking and management offers several advantages, including enhanced alignment of stakeholder interests, improved customer satisfaction, and superior risk management. To achieve its full potential, however, challenges such as cultural disparities, ethical dilemmas, and the complexities of behavioral therapy must be addressed. This essay emphasizes the significance of behavioral finance as a means to bridge the divide between academic knowledge and practical implementation, fostering resilience, creativity, and efficiency in the dynamic realms of banking and management.
Publisher: Asian Journal of Economics, Business and Accounting
Citation: Ranjan, R. 2025. “Behavioural Finance in Banking and Management: A Study on the Trends and Challenges in the Banking Industry”. Asian Journal of Economics, Business and Accounting 25 (1):374-86. https://doi.org/10.9734/ajeba/2025/v25i11657