Perhaps some of the most interesting blog debate I’ve read recently has been on Rod’s Personal Investment Strategies blog. 

It’s been a while since I did any consumer behaviour research with financial institutions, but in many ways my journey into consumer behaviour and away from traditional consumer research began during a consumer focus group about pension choice, back in the 1990s. 

It was the fourth long and tedious group discussion with people who were considering investing in a pension scheme, during which they told me how they wanted independent advice, a range of funds and a provider with good financial security.  At the end, after everyone was getting up to go, one of the group asked another, who had been a little more vociferous than the rest, where he was planning to get his pension.  The reply led to several of the group soliciting the details of someone who I recognised was an ‘industrial’ insurance salesman (i.e. not independent).  What’s more, they didn’t ask who he represented, how financially secure his company was or how many funds he offered.

I realised that I was going away to write my report on what they’d all said; meanwhile they were all about go and do something entirely different.

I’m aware of studies that have found people tend to like stocks that have readable names (as opposed to abstract or technical-sounding ones), and that people tend to select things in general that begin with the same first letter as their own name. 

These reflect the way the unconscious mind works, by generating a feeling based on familiarity, which is then consciously de-coded (erroneously) as being a ‘good’ choice.

Last week another study shed light on the power of the unconscious mind’s influence in this apparently rational world: a study conducted by the University of Haifa found that the investment selections of a group of investment advisers and accountants  was strongly influenced by what type of article they were given to read before making a selection.

Those who were given an article on someone who took big risks and was successful, rated a stock they were shown as being more attractive (more valuable for investment) than those who were shown the same stock after reading an article about someone who had been successful after avoiding a risky decision.

All the participants gave their assessment of the fund on the basis of the same financial report.

So it seems an investment advisers advice might have just as much to do with what he’s read that morning in the paper, or a story he has heard from someone else, as it does a ‘rational’ assessment of the data for that company.

Studies like these on the power of priming don’t make for particularly comfortable reading for anyone who likes to believe they’re balanced, rational and analytically-minded.  However, understanding the way our brains work is critical to understanding our customers’ behaviour.

Philip Graves

Source: University of Haifa (2009, April 28). Reading Reports Involving Risk-taking Affects Financial Decision Making. ScienceDaily.

20 Comments

  3. Pam Schulz

    It’s interesting to read how the rational and unconscious minds often pull us in opposite directions. Your point is well taken that people often think they want A but actually choose B because it fulfills an unconscious need, want or desire. It is good to bear this in mind.

    If you are looking to invest your money though, at some point – unless you choose to navigate the investment world yourself – you will likely be forced to make a choice between various options and advisers available to you. In essence, you are trusting your future to advice of someone and their investing philosophy and strategy.

    The question then becomes in whom do you trust and why do you trust them?

    As you have been explaining so well in your blog, our buying decisions must fulfill some type of psychological need. In the case of investing, one must feel comfortable entrusting their life savings.

    For some it is purely an emotional investment. They will invest with the person who makes them feel most comfortable or represents a philosophy they feel most comfortable with.

    For others, such as myself, our comfort-zone is found by analyzing details and facts. Rod’s approach will likely not persuade the masses. Nor does he intend it to. It’s a targeted niche of investors to whom his strategy will appeal. He knows and understands the demographics of those whom he is targeting.

    I have seen first-hand the results Rod’s methods of investing. The process through which he takes his clients is thorough, rigorous and intense. I can speak to this through personal experience as I am one of his numerous clients. And yes, even I had to go through the same battery of tools he uses to devise a plan tailored and targeted specifically to my risk tolerance and time horizon – which I might add is different than the risk tolerance of us as a couple. I would be remiss if I didn’t add that while the market has taken a hit in recent months, my portfolio has weathered the storm quite nicely given the current economic conditions.

    Everyone has to find their own comfort level – after all its YOUR money and YOUR future that you are banking on. While past performance is not a predictor of future earnings or performance, I know where my comfort-level is an I’m very happy with the results I’ve achieved through Rod’s methodology and strategic investing.

    Thanks for your time and consideration.

    Respectfully,
    Pam
    Invest in Your Future

    reply to comment→
  10. Duane Cunningham

    Hi Phil,

    Thats oh so true! You cover some great points within this post! And Robs right on the money! People are more interested in not looking bad in front of their peers than actually getting ahead!

    Duane

    Super-ADVANCED Influence & Persuasion Training Proven to Quickly Create a Flood of Money
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    reply to comment→
  11. JJ Jalopy

    “Studies like these on the power of priming don’t make for particularly comfortable reading for anyone who likes to believe they’re balanced, rational and analytically-minded. However, understanding the way our brains work is critical to understanding our customers’ behaviour.”

    It’s so important to be able to see past what you WISH was the truth, to find out what really works and how we really behave.

    You’re a clear expert when it comes to the determinants of human behaviour.

    JJ Jalopy.
    Coaching Marketing Expert
    How to become a coach with JJ Jalopy

    reply to comment→

  15. Pingback: The Psychology of Investment Decisions: Follow Up | Consumer Behaviour

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