How to address heuristics and cognitive biases in tax decision-making: A systematic literature review
DOI:
https://doi.org/10.31328/jsed.v7i2.5726Keywords:
cognitive bias, heuristic bias, risk perception, systematic literature review, tax policyAbstract
Heuristic and cognitive biases in Indonesia have caused tax compliance issues, as public prejudice leads to tax avoidance, and overconfidence among authorities results in less effective tax policies. This study aims to investigate the use of heuristics and cognitive biases in tax decision-making by individuals and businesses. It examined tax decision-making using heuristics and cognitive biases in tax decision-making, selecting 25 recent research articles from scientific journals. The research shows that using heuristics can lead to biases and errors among individual taxpayers and professionals. To mitigate this issue, adopting a comprehensive approach that includes educational initiatives, integration of advanced technology, establishment of structured decision-making processes, promotion of interdisciplinary collaboration, and fostering a culture of critical analysis within tax-related organizations is important. Therefore, addressing biases driven by heuristics in tax decision-making requires a combination of educational efforts, technological advancements, and cooperative and interdisciplinary efforts to enhance the accuracy and efficiency of decision-making.JEL Classification D91; G40; M41References
Acciarini, C., Brunetta, F., & Boccardelli, P. (2020). Cognitive biases and decision-making strategies in times of change: a systematic literature review. Management Decision, 59(3), 638–652. https://doi.org/10.1108/MD-07-2019-1006
Ahmad, M., Shah, S. Z. A., & Abbass, Y. (2020). The role of heuristic-driven biases in entrepreneurial strategic decision-making: evidence from an emerging economy. Management Decision, 59(3), 669–691. https://doi.org/10.1108/MD-09-2019-1231
Alm, J., Burgstaller, L., Domi, A., März, A., & Kasper, M. (2023). Nudges, Boosts, and Sludge: Using New Behavioral Approaches to Improve Tax Compliance. Economies, 11(9), 1–22. https://doi.org/10.3390/economies11090223
Almansour, B. Y., Elkrghli, S., & Almansour, A. Y. (2023). Behavioral finance factors and investment decisions: A mediating role of risk perception. Cogent Economics and Finance, 11(2), 1–21. https://doi.org/10.1080/23322039.2023.2239032
Atria Curi, J. A. (2019). Legalism and creativity: tax non-compliance in the eyes of the economic elite. International Review of Sociology, 29(1), 58–79. https://doi.org/10.1080/03906701.2019.1532653
Berthet, V. (2022). The Impact of Cognitive Biases on Professionals’ Decision-Making: A Review of Four Occupational Areas. Frontiers in Psychology, 12(1), 1–13. https://doi.org/10.3389/fpsyg.2021.802439
Blaufus, K., Chirvi, M., Huber, H.-P., Maiterth, R., & Sureth-Sloane, C. (2022). Tax misperception and its effects on decision making–literature review and behavioral taxpayer response model. European Accounting Review, 31(1), 111–144. https://doi.org/10.1080/09638180.2020.1852095
Brown, S. L., & Salmon, P. (2019). Reconciling the theory and reality of shared decision-making: A “matching†approach to practitioner leadership. Health Expectations, 22(3), 275–283. https://doi.org/10.1111/hex.12853
Cantarelli, P., Belle, N., & Belardinelli, P. (2020). Behavioral Public HR: Experimental Evidence on Cognitive Biases and Debiasing Interventions. Review of Public Personnel Administration, 40(1), 56–81. https://doi.org/10.1177/0734371X18778090
Dhami, S., al-Nowaihi, A., & Sunstein, C. R. (2019). Heuristics and Public Policy: Decision-making Under Bounded Rationality. Studies in Microeconomics, 7(1), 7–58. https://doi.org/10.1177/2321022219832148
Eberhartinger, E., Genest, N., & Lee, S. (2020). Financial statement users’ judgment and disaggregated tax disclosure. Journal of International Accounting, Auditing and Taxation, 41(1), 1–38. https://doi.org/10.1016/j.intaccaudtax.2020.100351
Espinosa, V. I., Wang, W. H., & Huerta de Soto, J. (2022). Principles of Nudging and Boosting: Steering or Empowering Decision-Making for Behavioral Development Economics. Sustainability (Switzerland), 14(4), 1–18. https://doi.org/10.3390/su14042145
Gershgoren, S., & Cohen, N. (2023). Street-Level Bias: Examining Factors Related to Street-Level Bureaucrats’ State or Citizen Favoritism. American Review of Public Administration, 53(3–4), 115–133. https://doi.org/10.1177/02750740231167897
Geva, T., & Tsechansky, M. S. (2021). Who Is a Better Decision Maker? Data-Driven Expert Ranking Under Unobserved Quality. Production and Operations Management, 30(1), 127–144. https://doi.org/10.1111/poms.13260
Haufler, A., & Nishimura, Y. (2023). Taxing mobile and overconfident top earners. In International Tax and Public Finance (Vol. 30, Issue 4). Springer US. https://doi.org/10.1007/s10797-022-09730-4
Hjeij, M., & Vilks, A. (2023). A brief history of heuristics: how did research on heuristics evolve? Humanities and Social Sciences Communications, 10(1), 1–15. https://doi.org/10.1057/s41599-023-01542-z
Ishfaq, M., Nazir, M. S., Qamar, M. A. J., & Usman, M. (2020). Cognitive Bias and the Extraversion Personality Shaping the Behavior of Investors. Frontiers in Psychology, 11(1), 1–11. https://doi.org/10.3389/fpsyg.2020.556506
Khan, U., Khalid, U., Zafar, A., & Zahoor, U. (2023). The Behavioural Finance Revolution: Bridging the Gap between Numbers and Corporate Performance. Qlantic Journal of Social Sciences and Humanities, 4(4), 191–202. https://doi.org/10.55737/qjssh.882102876
Khozen, I., & Setyowati, M. S. (2023). Managing taxpayer compliance: Reflections on the drivers of willingness to pay taxes in times of crisis. Cogent Business and Management, 10(2), 1–25. https://doi.org/10.1080/23311975.2023.2218176
Korteling, J. E., Paradies, G. L., & Sassen-van Meer, J. P. (2023). Cognitive bias and how to improve sustainable decision making. Frontiers in Psychology, 14(1), 1–14. https://doi.org/10.3389/fpsyg.2023.1129835
Lawani, A., Flin, R., Ojo-Adedokun, R. F., & Benton, P. (2023). Naturalistic decision making and decision drivers in the front end of complex projects. International Journal of Project Management, 41(6), 1–15. https://doi.org/10.1016/j.ijproman.2023.102502
Lokanan, M. (2023). The morality and tax avoidance: A sentiment and position taking analysis. In PLoS ONE (Vol. 18, Issue 1). https://doi.org/10.1371/journal.pone.0287327
Mata, A. (2023). Overconfidence in the Cognitive Reflection Test: Comparing Confidence Resolution for Reasoning vs. General Knowledge. Journal of Intelligence, 11(5), 1–18. https://doi.org/10.3390/jintelligence11050081
Misuraca, R., Faraci, P., Ruthruff, E., & Ceresia, F. (2021). Are maximizers more normative decision-makers? An experimental investigation of maximizers’ susceptibility to cognitive biases. Personality and Individual Differences, 183(1), 1–6. https://doi.org/10.1016/j.paid.2021.111123
Niittymies, A. (2020). Heuristic decision-making in firm internationalization: The influence of context-specific experience. International Business Review, 29(6), 1–12. https://doi.org/10.1016/j.ibusrev.2020.101752
Nuijten, A., Benschop, N., Rijsenbilt, A., & Wilmink, K. (2020). Cognitive biases in critical decisions facing SME entrepreneurs: An external accountants’ perspective. Administrative Sciences, 10(4), 1–23. https://doi.org/10.3390/admsci10040089
Petranova, D., & Rysová, A. (2020). Behavioural approaches in public policies. European Journal of Science and Theology, 16(4), 65–77. http://www.ejst.tuiasi.ro/Files/83/7_Petranova & Rysova.pdf
Ponhan, K., & Sureeyatanapas, P. (2022). A comparison between subjective and objective weighting approaches for multi-criteria decision making: A case of industrial location selection. Engineering and Applied Science Research, 49(6), 763–771. https://doi.org/10.14456/easr.2022.74
Rahamneh, N. M. Al, Mohammad, & Bidin, Z. (2022). The Effect of Tax Fairness, Peer Influence, and Moral Obligation on Sales Tax Evasion among Jordanian SMEs. Journal of Risk and Financial Management, 15(9), 1–15. https://doi.org/10.3390/jrfm15090407
Rangone, N. (2022). Improving consultation to ensure the European Union’s democratic legitimacy: From traditional procedural requirements to behavioural insights. European Law Journal, 28(4–6), 154–171. https://doi.org/10.1111/eulj.12439
Rauwerda, K., & De Graaf, F. J. (2021). Heuristics in financial decision-making: the selection of SME financing by advisers in an increasingly diverse market. Management Decision, 59(7), 1728–1749. https://www.emerald.com/insight/content/doi/10.1108/MD-09-2019-1269/full/html
Rullah, A. A. Z., Jide, I., & Onuh, E. O. (2023). Behavioural Finance: Exploring the Psychology and Economic Aspects of Financial Decision-Making. European Review in Accounting and Finance, 7(3), 50–64. https://eraf.deqepub.org/
Schirrmeister, E., Göhring, A. L., & Warnke, P. (2020). Psychological biases and heuristics in the context of foresight and scenario processes. Futures and Foresight Science, 2(2), 1–18. https://doi.org/10.1002/ffo2.31
Soest, C. von. (2023). Why Do We Speak to Experts? Reviving the Strength of the Expert Interview Method. Perspectives on Politics, 21(1), 277–287. https://doi.org/10.1017/S1537592722001116
Subandi, H., & Tjaraka, H. (2023). Tax Compliance and Tax Incentives during a Pandemic (Covid-19): Evidence from MSMEs in Indonesia. Jati: Jurnal Akuntansi Terapan Indonesia, 6(2), 157–172. https://doi.org/10.18196/jati.v6i2.18945
Sudirman, W. F. R., Winario, M., Priyatno, A. M., & Assyifa, Z. (2023). Risk Tolerance: Heuristic Bias Towards Investment Decision Making. Jurnal Manajemen Teori Dan Terapan | Journal of Theory and Applied Management, 16(2), 266–279. https://doi.org/10.20473/jmtt.v16i2.47471
Tsindeliani, I., Kot, S., Vasilyeva, E., & Narinyan, L. (2019). Tax system of the Russian Federation: Current state and steps towards financial sustainability. Sustainability (Switzerland), 11(24), 1–18. https://doi.org/10.3390/su11246994
Vainre, M., Aaben, L., Paulus, A., Koppel, H., Tammsaar, H., Telve, K., Koppel, K., Beilmann, K., & Uusberg, A. (2020). Nudging towards tax compliance: A fieldwork-informed randomised controlled trial. Journal of Behavioral Public Administration, 3(1), 1–10. https://doi.org/10.30636/jbpa.31.84
Yamini, S. (2021). Behavioral perspective of newsvendor ordering decisions: review, analysis and insights. Management Decision, 59(2), 240–257. https://doi.org/10.1108/MD-07-2019-0975
Yulianis, N., & Sulistyowati, E. (2021). The Effect Of Financial Literacy, Overconfidence, And Risk Tolerance On Investment Decision. Journal of Economics, Business, and Government Challenges, 4(01), 61–71. https://ebgc.upnjatim.ac.id/index.php/ebgc/article/view/284
Žigienė, G., Rybakovas, E., Vaitkienė, R., & Gaidelys, V. (2022). Setting the Grounds for the Transition from Business Analytics to Artificial Intelligence in Solving Supply Chain Risk. Sustainability (Switzerland), 14(19), 1–23. https://doi.org/10.3390/su141911827
Downloads
Additional Files
Published
How to Cite
Issue
Section
License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
