Behavioural finance explores how people take financial decisions in real life.
It bridges the gap between the logical, linear and predictable model of human decision making you learn about in economics textbooks, and the psychologically complex world real people live in. It sheds light on the beliefs, biases and emotions which drive human decision making.
And whilst much of the BeFi literature focuses on investing, it is relevant across all financial domains – spending, saving, credit and debt – even the propensity to take up benefits.
I was delighted to chair a panel discussion on the topic at the MRS Financial Services research conference yesterday. The timing was fortuitous.
You see, behavioural science was the golden thread that connected many of the day's talks. We were building on themes others had already exemplified including:
Our goal for the panel discussion was to demonstrate how human psychology underlies financial health.
James Pereira-Stubbs, Chief Client Officer at Oxford Risk laid out the origins of the discipline – from Kahneman to Thaler and Sunstein – quickly summarising what people needed to know. As well as giving an overview of recent client projects, he readily admitted his fallibility when it came to investing over the years. An action bias had lead to over-trading, meaning his best performing investment over the past 20 years was a pension he had forgotten about. You’re not alone James!
Jonathan Byrne, CEO at Virgin Money Investments took us through the development of Virgin’s new investment platform which launches in March. This is a disruptive challenger to a crowded market, 3 years in the making. Behavioural Science principles informed its development: as a mass market proposition, great care was taken to ensure the language and tone were welcoming for all. Journeys and information are simplified in appropriate places and the platform has personalised nudges built in along the customer journey. I'm looking forward to checking it out next month.
Anna Miley, Partner at The Foundation built on this, describing how ethnographic research connected the Virgin Money client team with a deliberately varied sample of potential customers. Tasks - like giving participants £200 to invest in any way they liked - opened up new perspectives. The main barrier to investing was that it was an identity challenge: many feel like it is “not for people like for me.” Combatting this notion became core to the platform's design. The research meant the team could see the design brief from the outside in - as a customer would.
Ed Nottingham, Lead Behavioural Scientist at NatWest gave us an overview of how BeSci works at a major high street bank. His team have real momentum, having grown headcount from 3 to 20 since 2020. He described the team's journey – from building relationships with colleagues from scratch to working in partnership with their many stakeholders. He highlighted a common challenge for BeSci teams - getting upstream of stakeholder needs, ensuring that BeSci is built-in not bolted-on. His team use an impressive repertoire of methods – from ethnography to RCTs - and apply BeSci to both customer and colleague challenges. I look forward to hearing more case studies from them in the future.
We whizzed through a great deal in our 35 minutes – from challenges (optimal vs. practical solutions) to consumer duty (welcomed, core to company missions) what the future of the discipline held (personalisation at scale, precision-guided information/decision aids to "meet people where they are" thereby helping get to the right outcome).
It felt like we had enough material for 35 hours not 35 minutes.
Thanks to the panel for their time and generous contributions, the MRS for organising and to Lisa Edgar for compering.
