The Psychology of Financial Fraud and Systemic Failures: A Secondary Review of Behavioural and Institutional Dynamics in Large-Scale Scams

Tanmay Jain

The Psychology of Financial Fraud and Systemic Failures: A Secondary Review of Behavioural and Institutional Dynamics in Large-Scale Scams

Author(s)	Mr. Tanmay Jain
Country	India
Abstract	Financial fraud continues to undermine economic stability, investor confidence, and institutional credibility despite significant advancements in financial regulation and corporate governance. This secondary review examines the psychological and systemic factors that contribute to the emergence and persistence of large-scale financial fraud, with a particular focus on the interaction between individual behaviour and institutional failures. Drawing upon academic literature from behavioural psychology, finance, criminology, and organisational behaviour, as well as regulatory reports and landmark case studies from India and across the world, the review analyses major frauds including those involving Harshad Mehta, Satyam Computer Services, Vijay Mallya, Nirav Modi, Enron, Wirecard, FTX, and 1MDB. The findings indicate that financial fraud is rarely the result of individual greed alone; rather, it develops through the convergence of cognitive biases, personality traits, rationalisation, weak governance, regulatory fragmentation, and organisational culture. The review further explores how technological developments, including artificial intelligence and digital financial systems, have transformed fraud methods while continuing to exploit predictable human behavioural patterns. It concludes that preventing financial fraud requires an interdisciplinary approach that integrates behavioural science with financial regulation, corporate governance, technological oversight, and financial literacy to strengthen institutional resilience and promote ethical decision-making.
Keywords	Financial fraud, Behavioural psychology, White-collar crime, Corporate governance, Cognitive biases, Financial regulation, Organisational behaviour
Published In	Volume 8, Issue 4, July-August 2026
Published On	2026-08-10

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The Psychology of Financial Fraud and Systemic Failures: A Secondary Review of Behavioural and Institutional Dynamics in Large-Scale Scams

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