Rotman Management – April 2019

rotmanmagazine.ca / 101

to understand risk and reward. In particular, advisers need
to be aware of a few things: That their customers can be par-
alyzed by too many options; anchored by the order of infor-
mation; disproportionately dissuaded by salient information
like fees; overly attached to investment strategies they have
held for a long time; asymmetrically influenced by news and
information that confirms their beliefs of the world; and can
be influenced by waves of influence or trends. It is so impor-
tant for financial advisors to keep the action/intention gap
at the forefront of their conversations with clients.

Looking ahead, what is next for behavioural insights in
organizations?
We really are just getting started. Even seeing the evolution
over the past three years has been incredible. I am inspired
daily by the growing number of clients who are thoughtful
about integrating behavioural insights into the way they de-

Melaina Vinski is the Lead of the Applied Behavioural Insights practice

for PwC Canada. She also co-leads the Global Community of Practice

for the firm.

Three Biases That Influence the ‘Money Mindset’

BIAS 1: LOSS AVERSION. Some investors focus more

on losing money even if the rest of their portfolio is up.

This can result in your clients either taking on too much

risk to recover losses or seeking an overly conservative

investment strategy.

Solution: Risk tolerance questionnaires can help you

gather information about your client’s ability to deal with

losses. Focusing on your clients’ investment goals can

help manage risk without succumbing to the fear of loss.

BIAS 2 : DECISION FRAMING. Framing impacts deci-

sions based on how information is presented. How a ques-

tion is presented, the language used and amount of infor-

mation can cause an investor to change their decision.

Solutions:

1. Choice architecture: The order and layout of the
   options presented influences decision making. Simplify
   the presentation of options to make it easy for clients
   to understand — for example: Arrange options from
   lowest to highest risk.

2. Discussion framing: Investment products can

be complex and difficult to understand. Framing

the conversation with easy and simple language

can help gain your client’s trust.

3. Overload: Providing too much information can have an

impact on the decision-making process, as your clients

might have a difficult time discerning the most important

elements. To the extent possible, limit the number of

decisions the client needs to make in a single session.

BIAS 3 : ANCHORING.First impressions are hard to

shake — especially for investors who rely on the first piece

of information they receive to make future decisions.

Solution: Anchoring does not have to be a bad thing. Use

it to your advantage by helping clients set an anchor based

on their financial goals. For example, this can be useful

when trying to determine how much they will spend in

retirement. A good approach is to set an anchor based on

how much they are spending today and adjusting it based

on how their lifestyle may change in retirement.

TEST YOUR OWN COGNITIVE BIASES:

http://www.pwc.com/ca/en/services/consulting/behavioural-

economics/cognitive-biases-in-action.html

sign and deliver their products and services, the way they

interact with and motivate employees, and the way they

make decisions.

Looking ahead, I see a bright future where our public

and private organizations weave behavioural insights into

the core of their processes and procedures — in particular,

at the competitive edge, where shared value can be cre-

ated between citizens and government, and between cus-

tomers and companies.