Perception of risk and borrowers' behavior.

Abstract

Financial behavior has been mostly studied from the economic perspective. However, human behavior and borrowers’ behavior particularly cannot be explored from a macro perspective and the statistical dependencies only. Borrowers’ behavior ought to be studied within the field of economic psychology as well, a research field that applies theories from psychological science in the study of economic behavior. Engaging in borrowing is a complex decision-making process that can be the reason for financial degradation which might even lead to bankruptcy. What is more, normalization of debt as well as constantly increasing credit competition renders it of crucial importance to study the factors underpinning borrowing behavior from all perspectives. This Thesis presents the factors determining borrowing behavior as recorded in the existing Literature, focusing on the factors mostly related to subjective risk perception. By analyzing the validity and applicability of existing Risk Perception Approaches with associated models, this Thesis manages to present how economic decision-making related to debt is influenced by the way and the extent borrowers perceive economic risks they are engaged in.