BEHAVIORAL ECONOMICS

More and farther, our desire We would like to see more and farther than our predecessors, we are not going to have keener vision or greater height, but we will be lifted up and borne aloft on their gigantic stature. We are dwarfs, but dwarfs who stand on the shoulders of those giants, and small though we are, we will be able to manage to see farther on the horizon than they. That is our desire. I’m sorry for the recreation of Bernard of Chartres and William of Basquerville, fictional friar from The Name of the Rose. But this is my shortest article, it is a summer article! From whom can we learn about Behavioral Economics and in an easy way? And … about Behavioral Economics? What can we learn? How to introduce us? And most importantly, from whom? We will do it easily and seriously at the same time. We will use the digital media we have at our disposal, those that come from online courses, MOOc`s, online courses aimed at open access via the web. MOOCs provide interactive courses with user forums to support community interactions among students, professors, and teaching assistants, as well as immediate feedback to […]

Nothing to worry about and plenty to enjoy! “An all inclusive vacations is travel travel as it’s meant to be: nothing to worry about and plenty to enjoy, all day and all night”. That’s right! That’s what we like. We won’t to get shocked by hidden fees on check-out. follow this post “pain of paying”. When we seek to discover our destiny on a trip, we pursue new ways of life or we expect existential answers, we want to feel ourselves, we want to know our identitiy, we look for our own history in our trip, we are travelers and not tourists. Nothing of that happens on an “all inclusive” and prepaid trip. Once on the trip, inside the hotel we are all the same, the bracelet its the only currency with which we will look for our supplies at the bar, in the restaurants, drinks bar in the poools, activities, guided tours… Although many detest them, there are those who found their solution in them, they have discovered to get the excitement from the concrete offer, sacrificing the individual transcendental search. The purpose of the citizen “all inclusive” lies, precisely, in not caring about anything except immediate happiness. But take […]

What kind of personality best describes you as an investor? Financial coaching (2) Our different personality traits and preferences, along with a wide range of behavior with emotional and cognitive biases, have a strong impact on the way that we invest. The following are the ten worst errors of beginner investors. The idea that our money works for us is interesting, but beware. Here are the errors that we should avoid: Investing is not a gamble. Not researching. To investigate is the key. The investment we want to make as well as the product, the advisor, etc. Not having a horizon, and a goal within. Not balancing risk and expected results. Not considering our own risk aversion. Not diversifying. Not deceiving with low prices. Not taking into account the consequences of taxes in our investment. Ignoring management fees. Accepting the premise that markets are always efficient.There are four different types of personality describing the majority of investors. According to the CFA Institute, there are four different types of personality describing the majority of investors: Conservative, Follower, Independent and Accumulator. Each one includes their own investment behavior and their own biases. The same author of the article, Michael Pompian, in his book Behavioral finance and wealth […]

Coaching is also financial (1) Financial coaching is emerging as a differentiated approach to develop financial skills. It is a process that helps people to define financial goals and implement action plans. Financial coaching is currently developing and facing several challenges, including the lack of evidence in the practice. The development of financial coaching will provide solutions to confuing situations about what we do when we want to make decisions for our long-term savings. Because we have to avoid disorientation like this: “Would you tell me, please, which way I ought to go from here?’ `That depends a good deal on where you want to get to,’ said the Cat. `I don’t much care where–‘ said Alice. `Then it doesn’t matter which way you go,’ said the Cat. `–so long as I get somewhere,’ Alice added as an explanation. `Oh, you’re sure to do that,’ said the Cat, `if you only walk long enough.’” Talk between the Cheshire cat and Alice in the adventures of Alice in Wonderland. Financial coaching is deployed in individual sessions with clients in order to train them to meet the financial goals mutually established by the customer and coach. If “coaching is the art of […]

Financial inclusion can be improved by nudges. We can give a hand to our decision-making. Yes, people can. You can improve financial inclusion by nudges in a country like Afghanistan, in which only 10% of Afghans have a Bank account to save in. With the help of behavioral economics a savings product has been designed. M-pasandaz (“M-saving” in Dari) automatically and through mobile phones (60% have mobile) collects savings from employees’ salaries. Also in more developed countries like ours, like Chile , it’s not easy to save, it´s not enough to understand the importance of having access to any savings, including rainy-day emergency funds. There are a number of well-documented reasons, such as the present bias, that can make us spend now and not save for the future. In addition, we can find difficult banking procedures that can lead us to make unsound financial decisions. The Government should increase the quality of life of citizens by improving, based on scientific principles of human behavior, the way the options are presented on finance, food, education and health. Dr. Sunstein of Harvard Law School, recognized along with Richard Thaler for their famed book, Nudge, and for being part of the President Barack Obama Administration, published his book in 2016, The Ethics of Influence: Government in the Age of Behavioral Science. His proposal is, […]

Everybody has de right to disconnect. Whay then can´t we stop shecking our emails? Dopamine, herding, present bias, regret… can all be reasons for our constant connectivity. The world of work is constantly being changed by digital technologies. Bahavioral patterns, the traditional workplace itself doesn´t always exist. Employees are more and more connected outside work hours. The line between profesional and personal life is tenuous, work hours are not necessarily continuous. There are inappropriate habits of course, in some companies, which is way a law has been implemented in France that defends the right to disconnect. Companies therefore will be obliged to implement regulation in the digital tolos. These mesures are aimed at guarenteeing rest periode and free time along with worklife balance. So what does disconnecting in this law means? No obligation to respond to emails outside office hours, nor be connected to work applications, to be trained in the risks of permanent connection. In France 37% of active professionals use work related digital tolos out of hours, according to a survey by ELEAS (september 2016). In all likelihood this verified reality is what has generated the deployment of the new rule. Why then can´t we stop checking our […]

Way do we like doing some things, but not when we are paid to do them? We live in two diferent worlds simultaneously. One in wich social norms prevail and the other where mercantile norms provide the guidelines. Social essence is in our social norms, our need to communicate with each other. They do not require instant reward. In the wolrd of mercantile norms trade-offs are perfectly defined: salaries, prices, rents, interest… Comparable benefits and punctual payments are involved. What is paid for is received. Several experiments tell us taht when we move over to consider mercantile norms the social norms disappear. The following are some examples: a lawyer voluntarily helping a senior citizen in a residential home (free of charge is satisfactory for the lawyer but not if he is offered 30€ for his time). A fine is implemented when parents drop their children off late at kindergarden or meetings participants arrive late. To resolve the problem of conscience we are willing to work for free or for a reasonable fee, for a meager pay no. When we are in the field of mercantile norms we are more autonomous, selfish, individualistic. When a social norm collides with a mercantile […]

The Save More Tomorrow, SMarT Plan, by Sholomo Benarzti and Richard Thaler, 2004, proposed a way to deal with the problems of retirement savings. No matter what we do, we are all in organizations pursuing changes in people’s behavior. This is the decision process in order to save for retirement. Analyzing the process we can identify factors that challenge people to carry out their intentions, there are bottlenecks:: In these bottlenecks we can apply a “Nudge”, that is, change the behavior in a desired way without prohibiting and without altering its economic consequences. Biases that we encounter and that make it difficult to make the optimal decision for us: About the definition of Nudge: Nudge, Thaler and Sunstein, 2008. And from “A practitioner’s guide to nudging” by Dilip Soman 2013. The Save More Tomorrow, SMarT Plan, by Sholomo Benarzti and Richard Thaler, 2004, proposed a way to deal with the problems of finalist saving for retirement. There are experiences around the world and some in Spain that, with success, have significantly increased savings for retirement. We know the decision process and the bottlenecks. We apply Nudges. A “nudge” is any element of the decision-making architecture that alters people’s behavior in a predictable […]

Availability heuristic. What is the frequency of a category? if their retrieval is easy and fluid, the category will be judged extensive. In 2009 the so-called influenza A (H1N1) pandemic began in Spain and  lasted until april 2010 when data were las updated. More than 1,500 cases were officially confirmed and approximately 300 people died. We all remember the informational, political deployment of social measures, there were posters, dispensers of antiseptic gel…everywhere. In 2014 Ebola appeared in Spain in several cases: repatriations of some infected people in Africa, a contagion of a nursing assistant and several false alarms. Also on this occasion we can remember the informative news in all media with minute by minute updates, press conferences (there were many), political and social protests… In this case there was one death. In both cases the detailed description of what was happening, in the media, turned A 2009 Flu and the Ebola crisis in 2014 into the social concern and alarm of this country. Flu in 2017, It´s just common ´flu! Flu related deaths in Barcelona exceed all forecasts. La Vanguardia In the first week of the year (2017) there have been more than 250 deaths linked to the epidemic, which surpass the two standard […]

We live in the present, we are temporary discounters. We live our own cognitive biases: present, self-control, optimism, inertia, herd effect … There are proposals that emerge from Behavioral Economics that will help us to make the optimal decisions for us. And we are going to talk about our future and make it a reality. Deferred reward means immediate sacrifice of cosumption for a future reward. Our different remmuneration concepts are referred: annual salary (paid monthly), annual variable, multiyear variable, shares, and our employee benefits: retirement, health, life risk… We life the present, we are temporal discounters. Temporal discounting suggests that the deferrement of a reward will lead to the perception of a reduction in its value. Furthermore, the perceived value for the same reward gets smaller with time. How can we better understand these cognitive biases? Can they result in making not optimal decisions? We can do these tihnks through the rigour of social sciences, in this case from economic and psychological experiments. We don´t think about the long term There is an experiment that clearly shows us this bias. Source: Read and van Leeuwen (1998). People were asked, one week before a meeting, to choose if they would like fruit […]

Money and time are scarce resources that people think would bring them greater happiness. In all probability, the main shared cause of dissatisfaction is lack of time, for those who are fortunate to have money because they have a job. People want to play for time and to make money, but unfortunately there is not a chance to beat at the same time in both. Instead, these resources are negotiated in many of the decisions, with our money we want to play for time.  If we earn more money we can avoid waiting in queues or not doing some tasks by paying others a price. People who choose time over money are happier. Hershfield, Mogilner, and Barnea, 2016 More money is associated with greater daily happiness up to an annual income of $ 75,000 approximately. Research also suggests that having more time is associated with greater feelings of happiness and satisfaction with life. Based on previous work, the choice of time over money is linked to greater happiness. (1) time-focused individuals were more engaged with behaviors associated with happiness than those aimed at focusing on money (2) time-focused people also became more self-reflective than those that focused on money (3) temporary […]

Let me get you into Behavioral Economics (BE). With a preamble about a jewel that I found this summer at my parent’s home. Among my high school and University papers was an article that I had kept of Kahneman and Tverski in 1986! These two people are recognized in the world as precursors of what is now BE. Kahneman, a psychologist, won the Nobel Prize in Economics in 2002 and Tverski, sadly, died of cancer in 1996. Kahneman and Tverski, two experimental psychologists, along with Richard Thaler, an economist, who has directly collaborated with them, have developed a group of great ideas for us during recent decades. Econ´s vs Human´s The idea “econs vs. humans” is an easy way to understand our decision-making behavior . This is the difference between: ECON, rational behavior, logic, we used to using logic … To do so we use our wills, we make a mental effort. We are economic. But does this happen really well? Do we always do it? This is the classical theory of economics. HUMAN´s, are not always logical, they have intuition, react automatically, have emotions to decide and can commit errors,  from a rational point of view. But these errors are consistent, […]