Prospect theory and bank credit risk decision-making behaviour: a systematic literature review and future research agenda

Date

2023-03-15

Advisors

Journal Title

Journal ISSN

ISSN

Volume Title

Publisher

Springer Nature

Type

Article

Peer reviewed

Yes

Abstract

Prior research, which has extensively documented bank credit risk behaviours, focused largely on credit risk decision-making under rationality. Nonetheless, credit risk decision-making often occurs under conditions of risk and uncertainty. In this article, drawing on prospect theory, our purpose is to examine bank credit risk decision-making behaviour under conditions of risk and uncertainty. In doing so, we employed a systematic literature review to synthesize the literatures at the intersection of prospect theory and risk behaviours over a three-decade period. Our research contributes to existing studies in management and risk behaviours by uncovering salient factors, loss aversion and risk perception, which mediate bank credit risk decision-making behaviour under conditions of risk and uncertainty. We discussed the theoretical model of prospect theory and main challenges in applying it when attempting to provide a greater understanding of bank credit risk behaviours. The paper documents the application of prospect theory within and outside of the banking industry and finds that bank risk perception and reference point shape credit risk decision making behaviours. In conclusion, we uncover several promising avenues for future research and draw attention of researchers to prospect theory application within bank credit risk behaviour domain.

Description

The file attached to this record is the author's final peer reviewed version. The Publisher's final version can be found by following the DOI link.

Keywords

Citation

Ogunmokun, O.C., Mafimisebi, O.P. and Obembe, D. (2023) Prospect theory and bank credit risk decision-making behaviour: a systematic literature review and future research agenda. SN Business & Economics, 3 (4), 90

Rights

Research Institute

Centre for Enterprise and Innovation (CEI)