Clients aren't listening on purpose: behavioral finance report

Recent research shows people tend to ignore news when it doesn't go their way

Mar 20, 2017 @ 1:23 pm

By Investment News

If you have to deliver information to clients that contradicts what they think, good luck. New behavioral finance research finds that people tend to ignore anything they don't already believe.

Writing in the Journal of Economic Literature, researchers Russell Golman, David Hagmann and George Loewenstein contend that conventional economic analysis assumes that people want information to help them make rational decisions. Instead, people "often avoid information simply because the information would make them feel bad," they said.

The authors concede that people often avoid information for perfectly good reasons. They point to stock-market investors who do not look up the value of their portfolio when the market is down. While this deprives them of potentially useful information, it is possible that "investors are aware of their own predilection for panicking and selling at the bottom of the market."

If that's the case, say the researchers, then ignoring information could actually improve investor returns.

But generally, the authors say, people ignore information because the information would create too much inner conflict over their positive view of themselves, their ability to resist temptation (as in the stock market example), their ability to sustain motivation, or the fear they will have to take responsibility for something that could make them feel guilty.

"Given the important consequences of information avoidance, research on the mechanisms that produce it could have immediate and important policy applications," the authors conclude.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

Behind the scenes of InvestmentNews' Best Places to Work

Benefits and vacation policies are important for hiring top talent, but giving employees a sense of ownership in decision-making is among the most important qualities, editor Fred Gabriel says.

Latest news & opinion

Pope Francis wants financial advisers to work like fiduciaries

Vatican bulletin admonishes advisers who act against the best interests of their clients.

Wells Fargo sees slowdown in advisers exiting this year

The 2016 banking scandal and public relations fiasco had alienated some of the firm's advisers.

States trying to save DOL fiduciary rule appeal rejection of effort to intervene

California, New York, Oregon ask for rehearing by full 5th Circuit Court of Appeals.

Employees at best places to work focus on the person — and the fun

Employees at best places to work firms focus on the person and fun.

Waddell & Reed sees flurry of senior staff departures

Firm also experiences an almost 30% decline in number of brokers and advisers.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print