Loss aversion and complaint avoidance in the Indian banking grievance redressal mechanism: An empirical study

Abstract

This study examines the role of behavioural biases, particularly loss aversion and perceived risk in shaping customers’ complaint behaviour within banking grievance redressal mechanism , with evidence from Guwahati, Assam. Even in the presence of formal grievance redressal mechanisms such as the Banking Ombudsman Scheme, many customers choose to avoid, withhold, or fail to escalate their concerns. Against this backdrop, the study aims to investigate how loss aversion influences complaint avoidance or withdrawal, examines the relationship between perceived risk and complaint avoidance behaviour, and evaluates the impact of loss aversion on the likelihood of escalation to the Banking Ombudsman. The study adopted a cross sectional quantitative research design and collected primary data from 385 bank customers using a structured questionnaire. Binary logistic regression analysis was employed to examine the relationship between behavioural biases and complaint behaviour, particularly focusing on avoidance and escalation decisions. The findings revealed that one-unit increase in loss aversion was associated with a 34.5% increase in the odds of withdrawing or avoiding lodging complaints, indicating that loss aversion significantly increases complaint avoidance. Additionally, one unit increase in perceived risk was associated with 54.6 % increase in the odds of complaint avoidance. Higher loss aversion was also associated with approximately 51% lower odds of escalation to the Banking Ombudsman. These findings are consistent with the Prospect Theory, which suggests that individuals tend to overestimate potential losses relative to gains, leading them to perceive grievance procedures as risky, costly, and uncertain.