As a senior manager or director in financial services, you will be acutely aware of the impact of recent information, such as Valuation Statements, stories on financial websites or even news events, on customer behaviour. Sometimes that behaviour seems like a wholly appropriate response. On other occasions it feels disproportionate and even self-sabotaging.
Odd as this behaviour sometimes seems, there is a reason for all this.
Courtroom dramas famously save the final scenes for the big, impassioned speech by the defence counsel that invariably frees the innocent in the dock or sends the true criminal to prison.
It’s the climactic moment that we all remember.
However, this is not just a dramatic device. There is a massive advantage in being the last one to speak. Ask any politician. They have long fought for the opportunity to speak last in any debate, recognising the advantage it confers. The words we remember most vividly are the words we heard most recently.
Similarly film, television and sports personality of the year awards and ‘Greatest Ever’ style programmes tend to favour more recent achievements over the more impressive.
It isn’t just a trick of memory, however. A recognised subconscious tendency known as ‘Recency Bias’ causes many of us to give greater significance to that which has occurred most recently than we do to other factors which are equally- or more- relevant and important, but older.
Often this leads to a distortion. For instance, employees may find themselves evaluated in their “annual appraisal” based mainly on what they’ve done over the past two or three months rather than over the entire year.
This distortion can also lead investors into making knee jerk reactions based on the most recent information they’ve received, rather than accurately evaluating all relevant data. This can lead, in turn, to over-hasty and reactive decision making, such as investing or disinvesting based on recent news items or the contents of the most recent annual or quarterly statement from an investment provider. Such reactions can be doubly damaging, because as well as the customer losing out based on poor investment decisions, the transaction costs to them of frequent and unnecessary changes may be considerable. Recency bias can be a short cut to self-sabotaging decision making.
Wi-Ai software is purpose-designed to reveal to your customers whether or not their decision making is based on this and a number of other biases. The aim is not to guide their decisions. On the contrary, the objective is to provide greater agency by understanding the role of bias in decision-making.
By helping customers understand and take ownership of their biases, Wi-Ai tools may ultimately allow financial services providers to engage and retain satisfied customers and foster more harmonious and profitable business relationships for all concerned.
To discuss whether Wi-Ai can help you and your customers master biases, contact us at [email protected]