An Analytic Network Process To Aid In Financial Decision-Making: Behavioural Finance

Abstract

The European Union has implemented investor protection measures that mandate professionals to conduct a client profile process in response to the financial crisis of the past ten years and the growing complexity of financial products. Offering goods that complement each person's unique qualities is the goal. By comparing the components suggested by the Markets in Financial Instruments Directive with research on traditional finance, the classes of variables for thorough profiling are produced. However, this structured profiling does not explicitly take into account behavioural finance research, which highlight the significance of behavioural attitudes. This paper combines regulatory advice with qualitative and quantitative evidence from the literature to examine the application of an analytical network process to enhance financial decision-making in a behavioural setting. The network cluster that integrates personality into the valuation is built using the Kersey Temperament Model as the behavioural model. Recent research has integrated uncertainty management into the framework of inter temporal choice theory. A case study is used to confirm the network's operation, in which two options with dissimilar features are examined in order to achieve the same investment goal. The current methodology demonstrates how the created structure can offer robust assistance for financial decision-making. The use of the Analytic Network Process (ANP) to assist in financial decision-making is examined in this research, with a focus on behavioural finance. Traditional decision-making models may not adequately address the cognitive biases and emotional influences that impact financial decision-making, which frequently entails intricate interdependencies. Through the evaluation of both quantitative and qualitative elements of choice criteria, the ANP, a multi-criteria decision-making process, offers an organized framework for studying these interdependencies. In order to demonstrate how psychological biases, risk perception, and emotional reactions can influence financial decisions, this study incorporates insights from behavioural finance.