Behavioral mechanisms and institutional trust in the transformation of financial decision-making across traditional and digital financial systems

This paper examines the relationships between behavioral biases, institutional trust and financial decision-making through a review of recent empirical and theoretical contributions. The analysis shows that financial choices are influenced by cognitive mechanisms such as overconfidence, extrapolation, loss aversion, ambiguity aversion, mental accounting, attention and social interaction. These mechanisms affect expectation formation, portfolio allocation, borrowing behavior and responses to gains and losses. The review also emphasizes the role of institutional trust in shaping participation in financial markets and relationships with banks, financial advisers and other intermediaries. Trust can facilitate financial engagement and delegation, while institutional misconduct, crises and weak credibility can reduce participation. Financial literacy, perceived competence and demographic characteristics further moderate these relationships. The development of FinTech extends this framework by transferring part of the financial relationship toward digital platforms, algorithms and alternative data-based systems. Digital finance can reduce transaction costs, improve access and expand institutional choice, but it also raises questions concerning transparency, screening, consumer protection and confidence in automated intermediaries. Overall, the paper argues that financial decision-making should be understood as the outcome of interactions between behavioral characteristics, institutional conditions, individual capabilities and technological change.