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  • Francesco Forni

The emergence and evolution of Behavioural Finance through the lens of Wealth Management

What encompasses Behavioural Finance and where does it originate?


The first generation of the field has been introduced by the two psychologists Daniel Kahneman and Amos Tversky and it is commonly referred to as Behavioural Economics, whose popularity raised in the 80s. The latter deals mainly with cognitive fallacies, called biases, caused by mental shortcuts utilised by individuals to translate difficult questions into easier ones, namely heuristics.


A simple and effective way to look at the second generation of this area of study entails the description of solutions to the previously mentioned biases, mainly derivable from the Nudge Theory, concept coined and analysed by the economist Richard H. Thaler and the legal professor Cass R. Sustain in the mid to late 2000s. In short, their dedicated work deals with the phenomenon of gently pushing an individual into making a more rational and thoughtful decision. In the field of financial advisory and wealth management, the concept of nudging can be found within the realm of storytelling, which consists of using verbal communication to convince the other party to switch for the desirable option.


The last generation of the field, namely Behavioural Finance 3.0 aims at questioning whether a single script can be considered as enough to nudge other individuals, in or case clients, or it is deemed relevant to differentiate between personality types when utilising storytelling. Therefore, the work of David Keirsey with his Temperament Theory constitutes a great starting point to identify these different psychological financial profiles. Hereafter I will illustrate the Keirsey Temperament Sorter, a questionnaire of 70 questions which is able to produce 16 possible outcomes, describing the array of personality types:

The image shown above displays a trial example where the individual, according to the sorter, identifies as an ESFJ. Please note that each letter is representative of a personality trait, namely Extraversion, Introversion, Sensation, iNtuition, Thinking, Feeling, Judging, and Perceiving. Furthermore, it is possible to regroup these acronyms into four big personality clusters, called Temperaments, representing aspects of someone’s personality, concerned with emotional dispositions and reactions, and their respective speed and intensity. In accordance with their respective descending global popularity rankings, the Dionysian, the Epimethean, the Promethean, and the Apollonian are identified:


  1. The Dionysian Temperament is representative of the SPs, which implies that all the acronyms with the two letters lie within this profile, and individuals belonging to this category are particularly impulsive and in need to feel free, without boundaries restraining them.

  2. The Epimethean Temperament deals with SJs, which can be considered as duty-oriented people with a particular need to belong to a community. Generally, when describing the differences between these first two profiles, the analogy of the fairytale of the Ant and the Grasshopper is brought into the discussion, as the Epimethean is represented by the hard-working ant that prepares itself for the winter, whereas the Dionysian enjoys every moment of its summer.

  3. The Promethean Temperament describes the behaviour of NTs, which are depicted as rational individuals whose need in society is to feel competent, able to perform results that other people expect from them.

  4. The Apollonian Temperament, namely NFs, resemble goal-oriented individuals, whose objective in life is actually to have a goal. Furthermore, their flexibility, intended as the adaptability they have with respect to becoming what the interlocutor wants them to be, is often perceived by other people to be one of their most remarkable traits.


The four Keirsey’s Temperaments described just above have been of inspiration for a great Asset Management firm, Amundi, leading firm in Europe for their sector, to develop a more contemporary questionnaire, able to identify four main financial profiles, and relative personalised storytelling for experts to apply. Please note that there are many affinities with the main characteristics of the four temperaments I mentioned previously, so in order not to repeat myself, I will list these financial profiles accordingly, without focussing too much on their personality traits, but rather on how to approach these different individuals when proposing to invest in a specific financial instrument:


First and foremost, let me make the example of a financial instrument that is mainly investing in education, for instance the so-called Education Bond, a government debt obligation utilised by countries to raise funds specifically for educational projects, such as building schools or funding scholarships. Now, let’s see how this theory can be put into practice within the realm of Financial Advisory and Wealth Management:


  1. The Enterpriser is particularly attracted by exclusive securities, meaning that the more the financial expert highlights how nuance and not saturated the market for these types of securities is, the better.

  2. The Guardian is by far the most loss averse. For this reason, the characteristic that have to be underlined by the wealth manager should be the soundness and safeness of investing in such sustainable instrument, but also point at the collateral positive effects it might have on his or her children.

  3. The Rational, by definition, does not need to be convinced with storytelling. He or she is in need of empirical financial information and data able to support the thesis of buying that instrument. For instance, it might be a good idea to show the spread between ESG and non-ESG type of investments, so that education theoretically falls under the highest risk-return bracket.

  4. The Idealist is perhaps the easiest to convince when dealing with thematic investments. For instance, this financial profile perceives his or her excess funds to be means to an end, meaning that he or she will utilize financial resources to invest in what he or she believes in.

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