Biological Neuroeconomics of the Entrepreneur: How the Illusion of Liquidity Activates the Financial Locust Bias

Financial decision-making among small business owners is influenced by neurobiological mechanisms and cognitive biases that heighten the risk of uncontrolled expansion, excessive leverage, and financial distress. Within a neuroeconomic framework, neurotransmitters such as dopamine, serotonin, and norepinephrine regulate liquidity perception, reward sensitivity, and risk evaluation. Dopaminergic activation after initial success reduces risk perception and fosters impulsive investments, while serotonin depletion during rapid growth weakens self-control and promotes short-term gratification. In liquidity shortages, elevated cortisol and norepinephrine impair working memory and planning, triggering emotional and reactive behavior. These neurochemical dynamics interact with cognitive biases: overconfidence encourages excessive borrowing; the illusion of control sustains exposure to uncertainty; and loss aversion delays abandoning unprofitable projects. A review of twenty-seven studies identifies three key dimensions: the neurobiological basis of financial behavior, the cognitive mechanisms behind liquidity misperception, and mitigation strategies based on education, adaptive regulation, and predictive neuroeconomic tools. This study introduces the Financial Locust Model, describing the shift from prudent to risk-prone entrepreneurship as the cumulative result of neurochemical imbalance and cognitive distortion. The findings highlight the need for integrative interventions combining neuroscience, behavioral insight, and policy innovation to enhance financial resilience among SMEs.