Mediating Analysis of Heuristic Behaviour between Neurofinance and Investment Decision-Making of Small and Medium Entrepreneurs: Evidence from a Field Experiment

Abstract

Entrepreneurs’ behavioural biases and emotions play an important role in shaping the rationality and quality of investment decision-making. Although behavioural biases are often assumed to influence financial choices, their direct effect on entrepreneurial performance and investment outcomes may vary depending on the psychological condition of the entrepreneur. Emotions, particularly positive and negative emotions, are closely associated with investment achievement because they can influence confidence, risk perception, judgment, and decision consistency. This paper aims to analyse the mediating effect of heuristic behaviour between neuro function, represented by emotion, and investment decision-making among entrepreneurs. A field experiment was conducted involving forty-two entrepreneurs to measure their emotional responses, investment decision-making behaviour, and heuristic tendencies. Data were collected using three structured sets of questionnaires designed to capture positive emotion, negative emotion, heuristic behaviour, and the quality of investment decisions. The collected data were analysed using analysis of variance (ANOVA) and General Linear Regression to examine the direct and indirect relationships among the variables. The findings revealed a significant effect of emotion on investment decision-making. Specifically, negative emotion was found to significantly influence poor investment decisions, both directly and indirectly through heuristic behaviour. However, positive emotion did not show a significant direct or indirect effect on investment decision-making through heuristic behaviour. Based on the analysis, a neuro-behavioural investment decision-making model was developed. This model provides useful insights for entrepreneurs by helping them recognise emotional influences, reduce decision-making errors, and improve emotional control during investment activities. Future research is recommended to examine heuristic behaviour as a moderating variable, as heuristic behaviour only partially mediates the relationship between emotion and investment decision-making.