How Behavioural Biases Influence Rational Decision-Making in Life Insurance Purchases Decision: A Mediating Role of Information Gathering

Abstract

Purpose - This study examines the impact of Decision Framing Bias and Mental Accounting Bias on life insurance purchase decisions, specifically during the process of choosing among available alternatives. In the context of rational decision-making, where individuals evaluate all options and select the most optimal one, this research aims to explore how these biases affect the critical stage of selecting from alternatives and their subsequent influence on the final purchase decision with the mediating role of information gathering. Design/Methodology - The sample was gathered using a simple random sampling technique on investors who have made transactions in life insurance purchases. The data was analysed using SEM PLS with Smart PLS application. Findings - The study found that decision-framing bias does not significantly affect the stage of selecting the best alternative. In contrast, mental accounting bias was found to have a notable influence on this selection process as well as the final purchase decision. Additionally, choosing among the alternatives as a critical stage of rational decision-making was also observed to have a subsequent impact on the final purchase decision. It was also found that information gathering has full mediation effect on the purchase decision. Practical Implication - The findings can help individual investors to analyse and evaluate their behaviour towards the selection of an insurance policy. Insurance institutions can use this research to understand investors’ behaviour and provide adequate information to insurance buyers before purchasing.

Keywords: Purchase Decision, Behavioural Bias, and Insurance

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