From Article at GetOutOfDebt.org

Transcription

1 VII APPENDIX TO PART D This appendix links suboptimal behaviours considered in the literature and surveys to be the result of financial illiteracy with social, economic, psychological and cognitive causes. Table 1: Linking Flaws in Behaviour with Social and Psychological Causes Suboptimal Possible sociaveconomic Possible psychologicav cognitive behaviour cause(s) cause(s) Not reading Market complexity Cognitive (in) ability terms Product complexity (Lack of) intelligence Unnecessarily complex and (Lack of) motivation verbose contracts Salience, or being psychologically attracted to some features while overlooking others Information overload Status quo effect Trust and loyalty, such as the familiarly and home effect Not Market complexity Salience/overlooking terms understanding Product complexity (Lack of) intelligence terms/being Use of unnecessarily (Lack of) motivation bound by complex financial terms Framing unfair terms of art Information overload Unnecessarily complex and Status quo bias verbose contracts (Lack of) formal education Poverty and lack of social capital, causing lack of Page 161

2 experience Informational asymmetry Unmanageable Poverty Present-biased time preferences credit card debt Low income Dynamic inconsistency and debt Unemployment Narrowly framed mental accounting, Culture of consumerism Financial exclusion causing compartmentalization Not considering relevant reference points Framing of marketing or credit card interest payment information Overconfidence in the ability to repay or to gain future cash flow Lack of self control Self serving evaluations Sunk costs effect Wants Short-sightedness, such as anchoring, adjustment, representativeness(ie: gambler's fallacy) and availability Disposition effect (in relation to losses in share trading) Unnecessarily Poverty Present-biased time preferences incurring fees, Low income Dynamic inconsistency for not paying Unemployment Not considering relevant reference debt on time Culture of consumerism points etc Framing Overconfidence Lack of self control Page 162

3 Adjustment Self serving evaluations Sunk costs Cognitive dissonance Wants Short-sightedness, such as adjustment Not Poverty, resulting in lack of Salience, and overlooking some considering exposure to finance important clauses and features key features of Product complexity Mental accounting financial Too many products Framing products Product features explained Overconfidence in an unnecessarily complex way The product disclosure statement is too detailed Informational asymmetry Ambiguity aversion Inertia Information overload Trust and loyalty such as representativeness (using past performance to indicate future performance ) or the adjustment based anchoring bias Not Market complexity Laziness, lack of motivation undertaking Product complexity (Lack of) cognitive ability and comparison Too many products numeracy shopping Trust and loyalty Ambiguity aversion Inertia Information overload, such as the familiarity and Page 163

4 home bias, or the adjustment based anchoring bias Information asymmetry Not reviewing Social networks Trust and loyalty already owned Product complexity Defaults products Status quo bias The endowment effect Confirmatory bias, such as self-serving evaluations Adjustment based anchoring bias Purchasing (Lack of) formal education Time inconsistent preferences unnecessary Social networks/informal Framing products advice Defaults Contrast effects Inexperience Norms The spotlight effect Not Market complexity Framing considering Product complexity Hyperbolic discounting fees and Hidden fees and charges, in Anchoring charges overly complex contracts Not Social networks Cognitive dissonance considering Crowd effect/tipping point Sunk costs investment objectives Pride Disposition effect "Short Culture of consumerism Present-biased time preferences Page 164

5 sightedness" Dynamic inconsistency The "value of zero" "Compartment Mental accounting alization" of money Do not receive Poverty or seek Low income Self serving evaluations independent (Lack of) formal education Overconfidence advice Social networks Information overload Not evaluating Time asymmetry Defaults Ambiguity aversion the credibility Skill asymmetry Trust and loyalty of an advisor's Poverty Information overload information, not seeking consensus, or Low income not critiquing advice Not Market complexity (Lack of) cognitive ability and understanding Product complexity intelligence financial Unnecessarily complex Innumeracy or lack of arithmetic skills advice advice Poverty, due to lack of exposure to finance (Lack of) formal education Using non Social networks Trust and loyalty professional Wealth, such as the familiarity and sources of home bias information, such as family Page 165

6 and friends Not gathering Product complexity Trust and loyalty or reviewing Market complexity (Lack of) motivation information Not saving for Poverty Short-sightedness the long term/ Low income Hyperbolic discounting not budgeting Culture of consumerism, causing people to spend Wants more than necessary Time inconsistent preferences, and dynamic inconsistency Making poor Lack of formal education Disposition effect investments Inactivity in Poverty Loss aversion the markets Low income Inertia Sunk costs effect and rules of thumb, such as the diversity heuristic Self serving evaluations Preference reversals and time inconsistent preferences Recognition heuristic Home effect Representativeness heuristic, particularly related to share trading Availability heuristic, relating to the illusory correlation error Contrast effects Cognitive dissonance Product complexity Preference reversals Page 166

7 Market complexity Lack of propensity for risk in a m arket with low promised returns Availability and representativeness heuristic (depending on previous experience) Availability heuristic, particularly resulting in the bias of imaginability and the bias due to the irretrievability of information Not buying Poverty Overweighting small probabilities insurance Low income Mental accounting Dynamic inconsistency Page 167