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.

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