Behavioral Insights for Financial Decision-Making in SMEs

Abstract

Small and medium enterprises (SMEs) often face cognitive and behavioral challenges that affect financial decision-making. This study examines the role of behavioral biases, such as overconfidence, herd behavior, and loss aversion, in investment, financing, and operational choices among 500 SMEs in Europe and Asia. Survey and interview data reveal that biases can lead to suboptimal credit utilization, underinvestment in innovation, and excessive risk-taking. Interventions such as financial literacy programs, digital advisory tools, and decision-making nudges are shown to improve financial outcomes and resilience. The research bridges behavioral economics and SME finance, offering actionable recommendations for managers, policymakers, and development agencies aiming to enhance SME sustainability and growth.