The Effect Of Behavioural Biases On The University Budget Estimates: Evidence From Public Sector Universities Of Pakistan

Abstract

This study examines how behavioural biases affect budgeting estimates in the public sector universities. Traditional models of budgeting assume that financial decision-makers are rational and they make their decisions based on objective financial data. Still, the experience of Behavioural Finance and Organizational Budgeting showed that decision-makers are often exposed to cognitive and affective biases which can mislead the financial judgment. This study, therefore, analyses how these behavioural biases influence the budgeting that are carried out by the university administrators and financial managers charged with the responsibility of planning and distributing the institutional resources in Public Sector Universities. A random sample of 439 treasurer and budget officers’ data collected through structure questionnaire.  This study focused on salient cognitive biases (Anchoring, Overconfidence, and Confirmation Bias), and affective biases (Loss Aversion and Status Quo Bias). The results highlighted the importance of the fact that behavioural biases significantly deteriorate the budget estimates and promote resources misallocation, budgetary slack, and operational inefficiencies. These distortions eventually put the financial performance and long term sustainability of the public sector universities at risk. This research adds value to the knowledge on the financial decision-making in institutions of higher learning by including the behavioural-based aspects in the study of institutional budgeting.