Understanding neuroeconomics: Six tendencies affecting clients and advisers

Scientists are no longer the only ones paying attention to the groundbreaking advances in neuroeconomics—the study of how people make financial decisions. Recent studies have uncovered six tendencies that people may exhibit when making financial decisions. This information is opening doors to new insights that can help advisors stay relevant and deepen their client relationships.

Neuroeconomics is a blending of math, psychology, biology, neuroscience, computer science and economics. These disciplines work together with nanotechnology to study the brain while it actively makes a financial decision. Over the past 20 years, nanotechnology has allowed neuroeconomics to grow to become a college major, Nobel Prize-winning subject matter and, in 2014, it appeared for the first time as a doctorate program at Claremont Graduate University in California.

Noted in First Clearing’s White Paper, “The Silent Value: Advice for the 21st Century,” neuroeconomics has uncovered a multitude of information about how the human brain works. Among the findings are six tendencies that may come into play when individuals are faced with financial decisions: emotional decision-making, loss-aversion, mental accounting, selective attention, framing and familiarity bias.

While technology has allowed us to better understand financial decision-making, it also poses a challenge — advisors must demonstrate their value in new ways as behavior and communication preferences have also changed. The “Next Generation” investor is one that has grown side-by-side with technology. They know how to look up their ailments on the Internet and turn to the web for most everything they need. This younger generation has more experience interacting with computers than with other people. To remain relevant and continue to demonstrate their value, advisors who have an understanding of neuroeconomics can translate it directly to client service and impacts to the bottom line.

To learn more about the six tendencies associated with financial decision-making and best practices for client service, read First Clearing’s White Paper, “The Silent Value: Advice for the 21st Century.”

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