Deeper drivers of financial decision-making not fully understood

Deeper drivers of financial decision-making not fully understood

November 8, 2017    

Jonathan Zinman explains why he thinks further research is required in order better understand the drivers of decision-making and the ways in which technology can be used to test behaviourally inspired innovations.

According to available research, which factors have proved to be the most powerful influencers of financial decision-making? 
This is still largely unknown; from a statistical fit perspective most analyses I have seen leave most of the variation in financial decisions or outcomes unexplained. It’s still largely a mystery. Part of this is due to measurement challenges – for example, measurement error in survey data where, in principle, you could have data on not just demographic but also deeper drivers of decision-making – part of this is due to a lack of understanding about what those deep drivers are.

Which behavioural interventions have proved most effective in driving uptake and usage of financial services?
Default options – although having said that, changing behaviour does not necessarily equate to improving outcomes overall. The (potentially behavioural) features of decision making that motivate interventions should also concern us in that defaults could have perverse consequences. For example, I save more but finance those savings by borrowing expensively, leading me to actually reduce wealth instead of increasing it as intended. We still have remarkably little good evidence on the overall impacts of defaults on financial condition/health.

If a financial service provider (FSP) were to introduce behavioural interventions for existing clients for the first time, what would you recommend?
This depends a lot on the FSP and its target market, distribution channel(s), marketing strategies and implementation constraints.

What impact is technology having on the field of behavioural science? 
It should, in principle, make it easy to develop and test behaviourally-informed/inspired innovations. In practice, 99% of practitioners and policymakers have a long way to go in terms of capacity and commitment. And we researchers still have a lot to learn and develop in terms of figuring out ways to best support, facilitate and augment R&D and testing in the field.

Are there any FSPs (traditional, digital or fintech) that are doing interesting or innovative things using behavioural science? 
None come to mind as worth singling out. There is a lot of “sizzle” about doing this, but I haven’t seen a particular FSP consistently do rigorous testing and be held accountable to improving holistically measured outcomes for its customers, with results made public and subject to peer review. As a researcher, I think that’s the appropriate standard.

Jonathan Zinman is a Professor of Economics at Dartmouth College, an Academic Lead for the Global Financial Inclusion Initiative of Innovations for Poverty Action (IPA) and co-founder of IPA’s US Finance Initiative. His research focuses on household finance and behavioural economics.

Refer to our database of select research studies, which highlight behavioural interventions that have been shown to affect financial decision-making.

insight2impact is currently doing its own research into the drivers of usage of financial products. Read more about our conceptual thinking on these drivers. 

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