Emotional Appeals and Financial Decision-Making among MSME Entrepreneurs: A Behavioural Finance Perspective

Abstract

Micro, Small and Medium Enterprises (MSMEs) are widely recognised as engines of economic development; however, their financial decision-making processes frequently deviate from the assumptions of traditional rational finance models. This study investigates the extent to which emotional appeals such as fear, optimism, stress, intuition, and social influence shape financial decisions among MSME entrepreneurs. Drawing on Prospect Theory, the Affect Heuristic, Behavioural Bias Models, and contemporary behavioural finance frameworks, the research examines how emotional triggers affect investment behaviour, risk perception, borrowing practices, and strategic financial planning. Using a structured questionnaire administered to 87 MSME entrepreneurs, the study employs ANOVA, correlation analysis, and descriptive statistics to analyse the relationship between emotional appeals and financial decision-making. Results indicate that emotional states significantly influence financial choices, with stress, fear, and optimism driving substantial variance in decision outcomes. Emotional and cognitive biases including loss aversion, regret aversion, overconfidence, anchoring, and herd behaviour were found to significantly shape risk-taking and investment behaviour. Furthermore, behavioural interventions such as emotional intelligence training, financial literacy, mentorship, and structured decision-making tools demonstrated positive correlations with improved financial outcomes and reduced decision errors. The paper concludes by offering targeted behavioural strategies for MSME entrepreneurs, policymakers, and financial institutions to enhance financial decision quality.