Framing, Overconfidence and Regret in Italian Mortgage Banking Litigations

This chapter aims at analysing banking litigations according to a behavioural perspective. The purpose is to uncover the intensity of affection for distortions or cognitive biases suffered by customers and to do an impact assessment. In fact, perfect rationality during the decision-making process might not be applicable due to several interferences. We focused on mortgage litigations, which, according to a pre-sampling procedure, resulted to be one of the most prone categories of case law to show behavioural distortion. We exploited the dataset managed by the Italian alternative dispute resolution mechanism, that is, the Arbitro Bancario Finanziario (hereinafter, ABF), and focused on three well-known cognitive biases in a financial environment: narrow framing, overconfidence and regret. In our empirical analysis, firstly, we built up the sample by randomly selecting 75 decisions from the ABF archive through an extraction algorithm. This procedure guarantees a homogeneous distribution and subsequently allowed to apply a statistical hypothesis testing of proportions to the sample. Secondly, we studied each litigation singly to state its degree of distortion. Guidelines used for this goal have been stated ex ante in the form of fundamental parameters for each kind of bias to ensure an objective and impartial statement. Thirdly, we run a statistical hypothesis testing to infer the sample to the whole population. Finally, but not marginally, we run a multivariate analysis to assess the impact of the presence of such biases. Our results indicate that if a litigation arises with the presence of a cognitive bias, the probability that the appeal is successful is low after controlling for time and the variability of the judge committee composition.