The banking credit risk behavior in Indonesia: The axiom of expected utility theory

The financial system’s vulnerability to the behavior patterns of financial system actors, especially banks, to risk-taking, is an important factor that must be considered to maintain financial system stability. The tendency of behavior patterns of actors that lead to adverse selection actions and moral hazard due to information asymmetry between borrowers and bank financial institutions as lenders cause friction in the financial system and can potentially cause a financial crisis. This study aims to investigate the axioms of expected utility theory in identifying the risk behavior patterns of bank borrowers. The analytical approach employed in this research is the experimental method. The study location was deliberately chosen using purposive sampling, specifically targeting Jember Regency. Experimental techniques were applied to financial actors, selecting 19 commercial bank customers in Jember Regency as the research sample. The study utilizes both primary and secondary data, encompassing perceptions as well as pre-existing data. The findings indicate that respondents generally prefer options that offer certainty, even if those options are disadvantageous. Respondents exhibit an asymmetric response to risk anticipation, reflecting their expectations when confronting the uncertainty of a prospect.