The Mediated Effect of Bounded Rationality on the Relationship between National Cultural Psychology and Irrationality in Financial Decision Making of Entrepreneurs: – An empirical study on the evidence from Ethnic Minority Business (EMBs) Entrepreneurs in West Midlands, UK

Abstract
The purpose of this study: Ethnic Minority Business Entrepreneurs’ (EMBs) financial behaviour is presumably shaped by their underlying cultural and cognitive factors. In this paper, it is expected to examine the tripartite relationship existing among National Culture, Bounded Rationality and Irrationality in Financial Decision Making of Sri Lankan ethnic minority entrepreneurs in the UK.

Methodology: This research employs a psychometric questionnaire consisting five point Likert scaled questions to collect data. Based on Kline’s (2005) 10:1 rule of thumb sampling method, a sample of 200 of Sri Lankan EMB entrepreneurs in the UK were selected. Exploratory and Confirmatory Factor Analyses (EFA and CFA) are used to examine the tripartite relationship among the underlying constructs.

Findings: The results from EFA show there are linkages among National Cultural Psychology (NCP), Bounded Rationality (BR) and Irrationality in Financial Decision Making (IFDM). CFA further proved a statistically significant direct effect in between IFDM and NCB (standardised estimation =0.403, p=0.002<0.05), and Indirect effect of NCB to IFDM via Bounded Rationality (standardised estimation = 0.301, p=0.001<0.05). Accordingly, it can be discovered a ‘Partial Mediation’ among these three constructs.

Originality and Contributions: This paper developed a questionnaire to measure the concepts and statistically confirmed the links among National Cultural Psychology, Cognitive Biases and Irrationality in Financial Decision Making of Ethnic Minority Entrepreneurs. This study provides new knowledge for behavioural finance by looking through the lens of national culture and introducing a novel model as ‘Cultural and Behavioural Financial Decision Making (CBDFM)’ which explains how entrepreneurs are being diverted from rationality by their national cultural and cognitive factors.

Practical Implications: EMB entrepreneurs are encouraged to understand their embodied cultural attributes which cause cognitive bias and eventually divert them from rational decision-making. Authorities who are empowering EMBs are recommended to consider the national cultural factors, and cognitive biases of EMB entrepreneurs when setting up new policies to promote EMBs.