THE IMPACT OF COGNITIVE BIASES ON FINANCIAL DECISION-MAKING: EVIDENCE FROM RETAIL BANKING CLIENTS IN AZERBAIJAN

Abstract

Research objective:The main objective of the study is to determine how cognitive biases such as overconfidence, anchoring, loss aversion, and present bias affect the financial behavior of retail banking customers in Azerbaijan and influence individual financial outcomes. Within this framework, the role of psychological factors in shaping bank customers’ financial decision-making is examined in the context of behavioral finance.

Research method: The study employs a qualitative analytical methodology. The methodological framework is based on a systematic review of internationally indexed academic literature and the analysis of secondary data derived from financial behavior and financial capability surveys conducted in Azerbaijan.

Research findings: The findings indicate that bias-driven decision-making tendencies among retail banking customers in Azerbaijan exhibit a persistent character. Present-oriented preferences are associated with low savings levels and weak long-term financial planning. Overconfidence, in turn, leads to increased risk-taking and the underestimation of potential financial losses. These results are consistent with existing academic research in the field of behavioral finance. The originality of the study lies in its focus on the Azerbaijani retail banking sector, while its scientific contribution is reflected in applying cognitive bias theory within the context of a developing financial system. From a practical perspective, the findings highlight the importance of integrating behavioral approaches into financial literacy initiatives. The main limitation of the study is its reliance on secondary data.