BEHAVIORAL BIASES, GEOPOLITICAL RISK, AND FINANCIAL MARKET VOLATILITY: AN INTERDISCIPLINARY STUDY OF PSYCHOLOGY, INTERNATIONAL RELATIONS, AND GLOBAL FINANCE (2024)

Abstract

The interaction between cognitive psychology, geopolitical uncertainty, and financial market dynamics is one of the most complicated and significant relations in the modern global economics. This qualitative research investigated the relationship between behavioral biases (overconfidence, loss aversion, herding and anchoring) and geopolitical risk variables to drive financial decision making
and trigger market volatility. Through purposive sampling approach, 15 participants were sampled in the professional and academic groups of financial analysis, behavioral economics, political risk advisory, and academic research. The collection of data was done using semi structured, in-depth interviews that were facilitated by an open-ended protocol that aimed at obtaining rich and contextual accounts of participants. Thematic analysis was used to code and interpret the data systematically, and four broad themes were created, namely: (1) the psychological architecture of investor behavior in the face of geopolitical uncertainty; (2) mechanisms of
amplification where behavioral biases translate geopolitical signals into market disruptions; (3) the moderators of institutional and structural moderation, which dampen or exacerbate bias-driven volatility; Results indicate that geopolitical events can be viewed as strong psychological stimuli that activate cognitive heuristics and emotional biases in a systematic way, and results in nonlinear
and asymmetric market reactions that cannot be properly accounted by traditional rational expectations theory. The paper ends by providing a conclusion on implications of the study to financial practice, policy design, and future interdisciplinary studies at the intersection of psychology, international relations and global finance.