Fluctuations in investment decision-making highlight the importance of understanding behavior—and the drivers behind it—as to how people manage their assets. As behavioral scientists, we help identify these drivers and provide insight into how communication may impact individual activity.
The definition of behavioral science
Behavior science is a broad term representing the ecosystem of study of human behavior. Pulling from elements of psychology, anthropology, sociology and other disciplines, behavioral science seeks to understand and make predictions about human behavior. When people act in ways that do not make sense to us, we can make the incorrect assumption that the behavior is somehow “irrational”.
Behavioral science helps us appreciate that behavior is driven by hundreds of thousands of years of brain evolution, and a web of intricate environmental influences. This helps us—as individuals with our own unique history, experience, and influences—better understand what motivates the behaviors of others.
Ten years ago, Richard Thaler’s book, Nudge, re-popularized the economics elements of behavioral science to the public. Since then, governments around the world have developed behavioral insights teams, and companies from McKinsey to Disney to the World Bank have sought to leverage behavioral science to impact their business.1 Financial institutions have also gained knowledge from behavioral science to better serve clients, especially to help investors manage behaviors that may be solely driven by fear or in times of accelerated activity.
Factors that influence behavior
Messages act as interventions to the communication process by activating factors that influence behavior. Factors are anything that science has demonstrated is capable of promoting or preventing human behavior. Think of factors as dials on an old radio: To tune to the right station, the correct frequencies must be dialed in. Like the radio, messages must be dialed in to the right factors to motivate behavior.
If you do not fine-tune the appropriate factors in a message, you are effectively leaving the effect of the message to chance.
Behavioral science research has identified hundreds of different factors that can influence behavior. A sample of factors that may be relevant to the financial industry are included below. Depending on the circumstances, these factors might be tuned up or down.
|Anxiety||An uncomfortable emotional state based in fear, nervousness, or uncertainty.|
|Cognitive Dissonance||The mental discomfort that arises from having conflicting beliefs or attitudes.|
|Confirmation Bias||Accepting new information or opinions to confirm a personal viewpoint and ignoring opposing opinions.|
|Dynamic Social Norm||A tendency to adhere to perceived social rules based on how the behavior of others changes over time.|
|Loss Aversion||A preference to avoid a loss in lieu of a gain of an equivalent amount.|
|Overconfidence Bias||An overestimation of abilities or results.|
|Regret Aversion||A fear of making poor decisions.|
|Relatedness||The recognition that a behavior can bring them closer to the people they love or help to support them.|
|Self-Efficacy||A belief in their personal ability to effectively engage in a target behavior.|
The importance of individuality
While we may hypothesize the effectiveness of any or all of these factors, it is difficult to be confident in their impact unless they are tested via a specific intervention channel, with a specific audience. People have different worldviews, live within different environments, and have varied concerns. Testing specific factors with a target audience helps a communicator understand which factor or factors will be most influential.
Dozens of behavioral science studies have demonstrated how the content of the message can intervene in the process to influence behavior:
- Although patients are aware of the benefits, healthcare practitioners are often challenged getting patients to follow guidelines such as exercise and healthy eating. Multiple studies have shown that targeted communication can be successful at influencing patients’ intentions to comply with health recommendations.2
- Conservationists work tirelessly to influence behaviors to preserve and protect the environment. While traditional awareness-raising efforts have shown some progress, targeted behavioral messaging has been found to be as effective in changing attitudes, knowledge, and behaviors to ultimately protect the environment.3
- Thaler and Benartzi developed a program in the 1990s that used “nudges” to drive people to gradually increase their rate of savings. As of 2017 it was estimated to have successfully increased the savings rates of as many as 15 million Americans.4
Four Key Considerations for Communicating
- Understand your audience, starting with demographics. Those include age, gender, education, income, ethnicity, health status, immigration status, experience in investing, and more.
- Be clear about the behavior you want to motivate or dissuade.
- Test different versions of your message with your audience(s) before launching to measure the reactions between them.
- Continually check whether you’re getting the impact you desire. Be prepared to adjust the message over time.
Paying attention to segment nuances can indicate how well messages may resonate. The more you understand your audience, the more specific and influential a message can become.
Laura Bowden is the Director of FCAT Client EXPRESS.
Ben Kertman is a Behavior Change Consultant with FCAT.