THE ROLE OF EMOTION IN FINANCIAL DECISION-MAKING: A NEUROFINANCE APPROACH- A STUDY ON TELANGANA REGION


Ms. Akula Manisha, Dr. R S Ch Murthy Chodisetty
Department of Management Studies, Vardhaman College of Engineering, Shamshabad, Hyderabad. Telangana
Abstract
Purpose The main purpose of this article is to explore the emerging field of neurofinance, which investigates the intricate relationship between neural processes and financial decision-making. By delving into the neural underpinnings of economic choices, the paper aims to enhance our understanding of how the brain influences financial behaviors, thereby contributing to a more comprehensive perspective on economic decision-making Design/Methodology/Approach Neuroscience is the subject which studies the functioning of human mind and how the financial decisions making process are influenced by the affective of neurological basis. The research adopts a systematic and comprehensive approach, employing a literature review to assimilate a wide range of studies across neurofinance, neuroeconomics, and related disciplines. The authors analyze empirical research, neuroimaging studies, and behavioral experiments to construct a cohesive narrative that links neural activities to financial decision-making processes Findings Reduced financial exploitation and fraud would contribute to a more just society, where individuals are less likely to be manipulated or taken advantage of by unscrupulous financial institutions. This would help restore trust in financial systems and improve overall economic fairness. By recognizing the emotional underpinnings of peer influence, society could shift toward norms that promote long-term financial health rather than short-term, emotionally-driven consumerism. For example, social networks could play a role in encouraging responsible saving or investing behaviors, or even discouraging harmful financial practices such as payday lending or excessive borrowing. Originality Individuals with stronger emotional regulation may make more rational, long-term financial decisions. Conversely, those with weaker emotional regulation may be more prone to impulsive behaviors, such as selling assets in a market downturn or making speculative investments. Neurofinance could contribute to a better understanding of how to frame financial products and services in a way that accounts for emotional reactions. For example, presenting financial information in a less emotionally charged manner could reduce impulsive decision-making. Research Limitations/Implications Emotions significantly affect how individuals perceive and respond to risk. Positive emotions may lead to more risk-seeking behavior, while negative emotions may prompt more conservative or risk-averse decisions. Understanding this can help financial institutions tailor their advice and products to account for emotional states. High-stress levels can impair decision-making and lead to suboptimal financial choices, such as excessive risk-taking or avoidance of necessary risk. A better understanding of the brain mechanisms involved in stress and decision-making could help create interventions for managing stress in financial contexts. Practical Implications Emotion-Aware Financial Advice: Financial advisors could integrate emotional intelligence and neurofinance principles into their practice. By recognizing how emotions like fear, excitement, and overconfidence influence client decisions, advisors can better manage clients' emotional states during high-stakes financial moments (e.g., during market downturns or when making large investment decisions). Tailored Investment Strategies: For clients with high emotional reactivity or stress, advisors might suggest more conservative investment strategies, or implement financial strategies that allow clients to make decisions in a calm, structured environment. They could also introduce mindfulness practices or stress-reduction techniques to help manage impulsive decisions triggered by emotional highs or lows. Social Implications The social implications of "The Role of Emotion in Financial Decision-Making: A Neurofinance Approach" are profound, as the integration of emotional insights into financial behavior has the potential to influence not just individual financial outcomes, but also societal dynamics at large. By understanding how emotions shape financial decisions, we can identify new ways to improve collective financial health, enhance social equity, and promote responsible market behavior
Keywords: Financial Decision, Neurofinance Approach, SEM Analysis
Journal Name :
EPRA International Journal of Multidisciplinary Research (IJMR)

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Published on : 2025-03-09

Vol : 11
Issue : 3
Month : March
Year : 2025
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