MANIFESTED CULTURAL DIFFERENCES IN FINANCIAL DECISION-MAKING

Abstract

The foundation of rational decision-making is based on the principles established by von Neumann and Morgenstern. These assumptions and tenets are prevalent in the field of conventional finance. However, with the advent of the field that came to be known as behavioural economics, there was sufficient evidence to suggest that the rational economic model is inadequate in thoroughly modelling decision-making. There were numerous studies empirically providing support for how varied internal and external elements beyond the control of the decision-maker have a significant role in shaping the ultimate choice.This review article primarily centres on the role of culture in individual financial decisions. The review commences by examining the identification and definition of cultural regions within the realm of psychology. It subsequently proceeds to synthesise research findings and draw comparisons across these different cultural regions. Additionally, the review explores the interaction between culture and individual cognition and centres the analysis of these manifested differences around three key domains which connect personal aspects to broader societal contexts.