Why you are more likely to fall for the wealth manager who quotes specific numbers
Investors may have more confidence in financial advisers who use precise numbers, rather than those who round them up or down, new research from the University of California, Los Angeles, suggests.
People who use more specific numbers — such as citing a 6.4% return instead of a 6% return — are judged to be more reliable sources and are more likely to be tapped by others for advice, according to a recent study by Danny Oppenheimer, associate professor of marketing and psychology at UCLA.
Most previous research on what conveys confidence has focused on physical cues, such as the eye contact of the presenter, their posture and whether they make nervous gestures. This research suggests that specificity with numbers as a confidence booster works even when the information is delivered through written forms of communication.
“So much more communication is happening today in ways that people don't have normal cues,” Mr. Oppenheimer said, noting the increased importance of e-mail and social media in business.
In the first part of the study, 187 undergraduates were asked to read 10 questions and estimate the confidence level of the person who had answered each one. The answers all involved numbers but some offered precise measures, such as “2,611 miles,” while others gave imprecise answers like “2,600 miles.”
Participants judged those who answered with more significant digits to be more confident, Mr. Oppenheimer said.
In the second part of the study, 163 people were paid to participate in a Price is Right-style game where they had to guess the price of different items. They were given audience suggestions like “$60” or $63” and had to choose which audience members would advise them in subsequent rounds.
Researchers found that participants preferred advice from those who gave more precise estimates, said the study, which was co-authored by UCLA's Ashley Angulo and Princeton University's Alexandra Jerez-Fernandez.
Applications for the research include “which politician to vote for, which stock broker to take on as financial advisers, and which doctor to trust with diagnosis,” the authors wrote.
However, one key is to be accurate, Mr. Oppenheimer advised.
Some legal psychological research suggests that when someone makes a statement with a lot of confidence but get it wrong, people are more skeptical of the person in the future, he said, noting that such theories have not been investigated in the context of investments.
“And of course, it's easier to be wrong, the more specific you are,” Mr. Oppenheimer said.
