Waiting for your baggage at the airport is the worst. For a while Houston airport tried everything to reduce complaints about waiting times. They streamlined their offloading system, reducing the actual wait time considerably. However, they still received complaints. That is, until they moved the arrival gates further away from the incoming planes so passengers had to walk for longer before receiving their luggage. Complaints decreased significantly. This is because time spent waiting feels longer to us than time spent doing something, such as walking. This goes to show that psychological trickery is at the heart of your everyday experiences - more than you’d think.
So where does psychology come into finance?
Humans are highly sensitive to psychological biases. Various techniques are used in business (and Finance) to guide consumers to specific actions or opinions. As a consumer it’s important to be aware of these as you make financial decisions. For financial institutions, however, tapping into these cognitive biases may give you an advantage over your competitors.
What are cognitive biases?
Cognitive biases are a result of both attention economy and bounded rationality.
Attention economy is the view that human attention is a scarce commodity, especially in an age where we are being bombarded with information all the time. Leading from this, bounded rationality is a theory that we don't have enough time to consider every decision, thus leading us to make decisions that aren't always entirely rational. While we do consider all the viable alternatives when making big decisions, we have to make thousands of smaller decisions daily and would be exhausted if we used the same process for all decision-making. For example, you grab an apple out of your fridge because you’re hungry and an apple is a relatively healthy snack. You don’t spend a couple of minutes weighing out every option for snacks, and how hungry you truly are. You would waste so much time.
Because of this, humans use mental shortcuts called heuristics. They help us save time and mental energy because “easy” tasks can be handled automatically, like saying bless you when someone sneezes or driving to work without having to think about directions. Many of these heuristics can be used by financial institutions to help ‘nudge’ consumers towards certain decisions, like putting more money away into a retirement fund or choosing to bank with them over their competitors.
Common heuristics and how to make them work for you
There are hundreds of heuristics that cause people to make oversimplified decisions. Here are just a few that might be advantageous to know about:
The Availability heuristic is overestimating the importance of the information which is available to you. Consumers will often choose a bank that they know and have had recent exposure to over a lesser-known bank which may better suit their needs. Marketers have known this for a long time, which is why staying top-of-mind is often a priority. Financial service providers can also use this information to ensure that their branding is salient enough and their offerings appealing enough for consumers to remember them. If you’re a consumer looking to make a big financial decision, it’s important to keep this heuristic in mind and thoroughly research all your options, even the less obvious ones.
The Representativeness heuristic is when people make decisions based on past events or traits that are representative of or similar to the current situation. In finance, this often leads to consumers believing that a remarkable performance from a given firm in the past will ensure that same profit-generation in the future. This means that reputation is critical for financial institutions to build and maintain: celebrate and publicise your big achievements. Consumers can circumvent this trick through research into long-term trends and financial forecasts put forward by independant and knowledgeable industry experts. .
The Authority bias is the tendency to weigh the opinion of an authority figure more heavily. For example, Discovery Bank is using Castor Semenya, a South African icon, as their brand ambassador to represent the ideas of trustworthiness, credibility and the healthy lifestyle they reward. Similarly, telling consumers that top financial advisors endorse a particular bank and personally use it may cause the consumer to weigh the opinion of that bank more heavily, even if their research tells them not to. As a consumer, it’s important not to be swayed by flashy, big names and endorsements, as these are ultimately being paid for by the brand. The actual performance of a financial institution will give more relevant and useful information when making a decision than a charming smile or an impressive CV from an individual representing the brand.
Neuromarketing can help
Neuromarketing strategies and Neurodesign principles are often informed by the many heuristics customers use when they make decisions - both online and in-store/in-branch. It can help you nudge your customers in the right direction, be used to change their behavior and most importantly elevate their customer experience across each and every customer touchpoint. If you want your institution to be top of mind, and your track record is up to the task, then so are we.