Cognitive bias and decision making

Cognitive bias and decision making

Cognitive bias and decision making 1920 1279

Cognitive bias is what happens when our thinking is skewed or driven by our own subjective reality, rather than objective input and logic.

Cognitive bias is also helpful. It allows us to sort through the vast amounts of information that we are constantly bombarded with and make sense of it quickly without experiencing “overload”.

However, it can negatively impact our thought process/decision-making when it comes to our finances, leading us to make potentially damaging decisions.

As a financial services provider or professional offering advice or guidance to your customers, it’s hugely beneficial to be able to identify these patterns. This is what lies at the heart of Wi-Ai Technology Limited’s behavioural bias software, which is designed specifically with the needs of financial services businesses and their customers in mind.

A great example of bias is Risk Aversion.

If you asked someone whether they would prefer to keep the £1000 they have just won or flip a coin for a chance of winning £5000, most people would choose to play it safe an keep the £1000. This is because in general our fear of losing is greater than the satisfaction of winning. However, this can be a hurdle for someone to overcome when it comes to making investment decisions. Many people may say they would rather not lose any money at all than take a risk and potentially earn more. Of course, this puts them at risk in other ways, such as the risk that their savings will be eroded by inflation because they are in “safe” but very low interest investment vehicles.

Being able to assist your clients in identifying these traits within themselves can help you to provide the right advice or guidance when it comes to determining the best path for them to take when it comes to their investment decisions.

As a financial professional, is this something you encounter regularly with your clients? How do you overcome this?

To find out more contact us today: [email protected]

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