COGNITIVE BIASES: ESSENCE AND IMPACT ON FINANCIAL DECISIONS

Abstract

The article focuses on the influence of cognitive biases on complex financial decision-making, particularly under conditions of uncertainty and risk. Cognitive biases are systematic deviations from rational thinking that can significantly distort the process of decision-making. These biases are especially prominent during periods of economic crisis or uncertainty, when individuals and organizations are more vulnerable to emotional and psychological factors. The study highlights how cognitive biases impact the way information is perceived and processed, even when objective data and economic indicators are available. This deviation from rationality leads to irrational financial choices, as subjective beliefs, emotional states, and past experiences often shape decisions. Despite the fact that traditional financial management relies heavily on accurate, objective data, this article argues that cognitive biases play a crucial role in decision-making, often leading to poor judgment and financial errors. One of the key points discussed is the complex interaction between cognitive biases and other psychological factors. This combination can exacerbate irrational decision-making, especially when financial decisions are made under high pressure or in crisis situations. Cognitive biases can also reinforce one another, creating compounded effects that lead to more significant errors in judgment. The article emphasizes the need to better understand and identify cognitive biases to mitigate their impact. By recognizing these psychological mechanisms, financial managers can reduce the negative consequences of biased decision-making. This approach can lead to more rational, well-founded management decisions and improved risk management strategies. Furthermore, understanding the interplay between cognitive biases can help in adapting financial strategies to changing economic conditions. Another important aspect explored is the development of tools and strategies that can be employed to minimize the influence of cognitive biases on financial forecasts and decision-making processes. The article underscores the importance of developing effective strategies for dealing with biases in order to increase the accuracy and quality of financial predictions, reduce risks, and optimize financial decisions. The article emphasizes the importance of further research into the identification and management of cognitive biases in financial decision-making, highlighting the need to better understand these biases to make more informed and rational decisions in the face of increasing economic volatility and uncertainty.