THE ROLE OF OVERCONFIDENCE, ANCHORING, AND SUNK COST FALLACY IN EARLY-STAGE INVESTMENT BUDGETING DECISIONS OF STARTUPS: A MANAGERIAL ACCOUNTING PERSPECTIVE

Abstract

This study investigates the influence of behavioral biases—overconfidence, anchoring, and sunk cost fallacy—on investment budgeting decisions in startups in East Java, Indonesia, and Malaysia. Data were collected from 35 startups (18 in East Java and 17 in Malaysia) using structured questionnaires and analyzed with Partial Least Squares Structural Equation Modeling (PLS-SEM). Additionally, qualitative interviews with 9 participants were conducted to enrich and validate the quantitative findings. The results indicate that all three behavioral biases significantly affect investment budgeting decisions, with overconfidence leading to overly optimistic budget allocations, anchoring causing reliance on initial budget estimates, and sunk cost fallacy prompting continued investment despite declining project viability. This study highlights the importance of addressing behavioral biases to improve financial decision-making in startups. Practical recommendations include incorporating objective evaluation processes and adaptive budgeting techniques. Limitations include the sample size and regional scope, suggesting future research expand the sample and explore additional behavioral factors across broader contexts.