This month’s issue of the Journal of Financial Planning included a description of two experiments designed to explore the way consumers make investment decisions. Simple lists, researchers found can overcome “cognitive blind spots”, speeding up the decision making process…
(Now retired from my career as a CFP®, I stay interested in behavioral finance, which is using science to move individuals in the direction of better decision-making. I view my present work as content writer for business blogs as very similar – helping my clients’ readers make good buying decisions.)
“Identifying investment goals is a critical step in developing a sound financial plan that helps investors reach their objectives,” but the success of goals-based planning hinges on two important steps, behavioral scientists at Morningstar realized. Investors had to find what goals are important to them, and then prioritize those goals. The reality, however, was that behavioral biases too often undermined the process, and investors found themselves unable to take action that truly matched their own goals.
Dual process theory suggests that our minds use two different processes to make decisions:
- System One is fast and intuitive
- System Two is slow and deliberative
Because of a lack of pertinent information, a failure to pay attention to key information, and time constraints, science has found, we often rely on System 1 when it comes to decision-making
In this experiment, the researchers created a “master list” containing 12 typical financial and non-financial retirement goals (financial independence, health care, housing, travel and leisure, etc.). Study participants were asked to complete two sequential tasks through an online survey:
Step One: Each participant was asked to list and rank their top three investment goals. (The program then added those self-generated goals for each participant, in random order, to the master list of common investment goals.)
Step Two: Each participant was asked to look at the master list of goals and, if they wanted to, change their list of top three goals.
Results – 26% of respondents changed their top goal after seeing the master list. Almost twice as many changed either one or both of their top two goals, and 73% changed one or more of their top three goals.
Conclusions – The provision of a master list helped clarify a person’s previously ambiguous self-reported goals. “When asked to prioritize a list of goals that are important to them, people may not know what their preferences are and therefore elect to prioritize short-term goals over long-term ones or emphasize minor objectives while neglecting major aspirations because of the desire for instant gratification.”
How does all this information about investor behavior translate into blog content writing? Hasn’t the technique of using lists in blog posts been overdone? Perhaps, but I think using lists in blog posts is less about grabbing attention and more about demonstrating ways in which the company’s (or the practitioner’s) products, services and expertise are useful, perhaps in unexpected ways.
Since buyers often use System One thinking, relying on brand awareness or past purchases to make buying decisions, providing a “master list” showing other options is designed to stimulate more thoughtful purchasing choices. At Say It For You, an important goal is opening up readers’ minds and “calling them to action”. The research I read about in the Journal of Financial Planning suggests that master lists might help in the process!