Experimental analysis of neurofinance towards heuristics behaviour on financial decision making: case of Small-Medium Entrepreneurs (SMEs).

Financial decision making is a crucial part for business survival especially among SMEs because 95% of the businesses are facing failure within five-year time. The psychology and behavioural factors have led to the lack of financial decision making. This research aims to determine the effect of emotions towards financial decision making. It also identifies the pre-test of financial decision making to enhance the emotion and post-test financial decision making. The mediating effect of heuristic on emotion and financial decision making was examined. Pre-test and post-test of experiment analysis was used to examine the effect of identified variables. In pretesting, emotions and financial decision-making questionnaires were measured on forty-two SMEs at Pusat Usahawan MARA (PUSMA). Then, manipulation of emotions was done through the treatment of positive and negative emotions using 12 and 16 minutes’ video clips. Each subject was randomly selected to assign any one of the treatments using lottery method. Meanwhile, in post-testing, the data were gathered by repeating answered emotion and financial decision-making questionnaire, followed by heuristics questionnaire. The data were analysed using ANOVA, ANCOVA, and mediation analysis. The results showed that emotion had significant effect on financial decision making. Moreover, pre-test of financial decision making enhanced the effect of emotion towards the post-test financial decision making. However, with the mediation of heuristic behaviour, there was partial mediation effect especially on negative emotion towards financial decision making. From the analysis, neuro-behavioural of financial decision-making models were proposed. The proposed models were incorporated with the brain components and working memory. It showed that System 1 and System 2 of dual process theory were activated for negative and positive emotion respectively. Further research can be tested the manipulation of emotion from video clips using science laboratory and analysed the heuristic behaviour as moderator.