ifie-iosco global investor education conference rita de... · perspectivas, decisões, arquitetura...

IFIE-IOSCO Global Investor Education Conference

Applying Theory to Action:Implementing FC/IE Best Practices

& Lessons LearnedWashington D.C.

2014

Behavioral Economics, Economic Psychology and Investor Education

VERA RITA DE MELLO FERREIRA

www.verticepsi.com.br

IFIE-IOSCO-2014


IFIE-IOSCO-2014

VERA RITA DE MELLO FERREIRAIFIE-IOSCO Global Investor Education Conference

Behavioral Economics,

Economic Psychology

and Investor Education


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So, knowing we have all these many biases, what would our aim be regarding investor education?

DEBIAS


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because, in a nutshell – it is as if we had akind of EMOTIONAL stoplight in our mind:

if seems unpleasant = good-bye![disregarding consequences]

if seems pleasant = welcome!

[even when only an illusion...]

And this automatic, unconscious and rudimentary

‘assessment’ considers only the short range!



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WE LOVE- to get rid of tension �immediate

gratification – and no cost!

- promises – or illusions – that all is

and always will be beautiful =

- everything that matches our beliefs

expectations and desires

- to feel that we belong, we are ‘in’

- all that is clear � simple, easy and

fast to understand

- little information and few options

WE HATE - TO LOSE

- to make decisions

- to postpone gratification, to feelfrustrated and excluded [even ifthere is a benefit ahead]

- uncertainty and ambiguity

- anxiety from ‘not getting it all’

- to consider the long range

- to acknowledge the whole context –it usually implies some distress...

[RISK IS NOT – necessarily –ON THIS SIDE OF THE LIST!]

But doesn’t this go right against the way the financial market operates??

Yes, unfortunately...



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WE’VE COME A LONG WAY...BUT ARE NOT QUITE THERE YET!




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SYSTEM 1 vs. SYSTEM 2hot self vs. cold self Automatic vs. Reflexive

Action vs. Intention

Doer vs. Planner

Short range vs. Long range

PSYCHOLOGY EDUCATION

THERE IS A LARGE GAP BETWEEN INTENTIONS... AND ACTIONS! So:ECONOMIC PSYCHOLOGY/BEH. ECON.

+ FINANCIAL EDUCATION

=COMPLEMENTARY WITH GREATER EFFICACY



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ECONOMIC PSYCHOLOGY – 1881 [more recently Behavioural Economics, Behavioural Finance, Neuroeconomics, Applied Behavioural Science]

- interdisciplinary field – economic behaviour and decision-making � anomalies, distortions in perception, memory and judgment

of data

- 3 Nobel Prizes in Economics: - 1978 – H. Simon � bounded rationality

- 2002 – D. Kahneman � prospect theory

- 2013 – R. Shiller � financial markets and bubbles



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OUR MIND

EMOTIONS/IMPULSESvs. REASON

THINKING IS BUT A RECENT ACHIEVEMENT!!

it does not take place naturally... – and instead must beforced upon our mind by reality and its impositions

� especially, to be able to think about unpleasant stuff, like frustrations, losses e distressing things in general...



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OUR MIND

THINKING IS STILL RATHER UNSTABLE!

IT MAY ‘COLLAPSE’ ANY TIME...


THIS IS WHY IT IS RELEVANT TO UNDERSTAND

THE INVESTORS’ MIND

AND THUS DESIGN [MORE] EFFICIENT

FINANCIAL EDUCATION PROGRAMS FOR THEM



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Financial education programsmust address this real condition

if their goal is tochange behaviour towardsgreater financial capability

among investors



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THEN, HOW CAN EFFECTIVE

BEHAVIOURAL CHANGE BE ACHIEVED?

- psychological limitations must be considered

- accuracy in mental operations can’t be taken for granted- but emotions should, because they’re always present!- preferences are not consistent

- the hot self and groups [herding is powerful!] are the targets

- since they’re the actual doers most of the time

- however, they’re not too good as far as learning goes…



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FINANCIAL EDUCATION + ECONOMIC PSYCHOLOGY:‘DO’S’



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1. clear language √√√√

2. examples and narratives √√√√

3. different delivery channels √√√√

4. relevant, tailor-made and timely info on the psychology of economicbehaviour and decision-making √√√√5. warnings against fraud √√√√

6. careful maintenance and constant updating √√√√

7. checklists √√√√

8. multidisciplinary approach √√√√

9. exchange experience √√√√

10. specific formatting for different segments √√√√

11. good timing – learningopportunities √√√√

12. coherence √√√√

13. crowdsourcing – investors √√√√

14. internet and social media √√√√15. choice architecture √√√√

16. ‘MANTRA’: KEEP IT SIMPLE √√√√[a.k.a., the HUGE challenge here…]

FINANCIAL EDUCATION + ECONOMIC PSYCHOLOGY:‘DON’T’S’



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1. getting carried away with jargons and abstractions ⊗⊗⊗⊗

2. too much information ⊗⊗⊗⊗

3. too many options ⊗⊗⊗⊗

4. excessive complexity ⊗⊗⊗⊗

5. ‘loose’ – i.e., out of context – recommendations & warnings ⊗⊗⊗⊗

6. solely logical explanations ⊗⊗⊗⊗

7. ‘one size fits all’ ⊗⊗⊗⊗

8. obsolescence ⊗⊗⊗⊗

CHOICE ARCHITECTURE �� NUDGE- recent research line

- debatable efficacy of education, awareness and empowerment

- mounting evidence on systematic errors

- hard to learn with experience (scarce opportunities and/or biases)

- a “seemingly self-destructive side of human behavior ”

- therefore: policies to help make those choices more successful

�� NUDGES – strategies to encourage better decision-making by turning

limitations into advantages – but with opt-out!- foolproof contexts

- low cost

- simple

- mass scale



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CHOICE ARCHITECTURE �� NUDGE

What would your meal be like if it started like this?



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And what if it started this way?



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Or this??



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If the goal is to lose weight and/or stay healthy...

the nudge, here, has been to start with healthy options – though one could always skip them, and go straight to the fattening stuff!


CHOICE ARCHITECTURE AND INVESTOR EDUCATION

For instance:

- In light of behavioural findings, start by analyzing the currentchoice architecture used by the industry and regulators

- what have investors been ‘nudged’ towards doing regarding practices, norms etc.?

- then, afterwards, discuss, test and consider what and howthings could be changed wherever necessary



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BUT ONE THING IS FOR SURE:IN ORDER TO ACHIEVE EFFECTIVEBEHAVIOURAL CHANGE…

… different strategies mustbe devised to go beyond the simplepresentation of technicalinformation and advice



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FINANCIAL EDUCATION AND ECONOMIC PSYCHOLOGY ONGOING PROJECTS IN BRAZIL

1. ENEF-the Brazilian National Strategy for Financial Education- for high school students � with the addition of economic psychology blinkers!

2. NUMIP – Economic Psychology and Financial Education Interactive Museum Center [at the Brazilian Central Bank Money Museum + IAREP-International Association for Research in Economic Psychology]

3. CVM [Brazilian SEC] – Behavioural Studies Center – new!



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CVM – Behavioural Studies Center – new!

- team of behaviour specialists: behavioural economics,economic psychology, neuroscience, cognitive and

social psychology, education

- in light of behavioural studies, provide insights,

suggestions, criticism, recommendations and technical

support towards enhancing efficiency and efficacy of educational policies, as well as information and guidance

for investors



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GOALS OF THESE PROJECTS AND WHY THEY ARE INNOVATIVE

1. Reach � System 1 and System 22. Two complementary measures: debias [reduce vulnerability to

biases / traps] + trigger discussions around strategies, context design and policy-making to improve decision-making

3. Protection of individuals, groups and organizations from errors, while offering them tools to better manage their economic decisions with greater responsibility, autonomy and sustainability

4. Dissemination of warnings and antidotes towards avoiding psychological traps in mass scale

5. Contribution to micro finance and financial inclusion initiatives



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• Economic Psychology independent consultant (policy-making: ENEF-National Strategy for Financial Education, NUMIP-Economic Psychology and Financial

Education Interactive Center at the Brazilian Central Bank Money Museum,

NEC-Behavioural Studies Center, at CVM, and other organizations), Ph.D in social psychology (PUC-SP), Lecturer (FIPECAFI), Psychoanalyst (Inst. Sedes Sapientiae)

• Speaker; Coordinator of economic psychology study and work groups• Member of ICABEEP-The International Confederation for the Advancement of Behavioral

Economics and Economic Psychology Executive Committee and IAREP-International

Association for Research in Economic Psychology Representative in Brazil• Author of articles published in Brazil and abroad, and the books:

VERA RITA DE MELLO FERREIRAVÉRTICE PSI Psicologia Econômica – um vértice psicológico para pensar

perspectivas, decisões, arquitetura de escolha e políticasVERTICE PSI Economic Psychology – a psychological outlook for perspectives,

decision-making, choice architecture and policy

ifie-iosco global investor education conference rita de... · perspectivas, decisões, arquitetura...

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