Topic 2 - Investors Wants - Utilitarian, Expressive, and Emotional Benefits

Question 1

What are the three benefit categories of investing?

Answer 1

Utilitarian
Expressive
Emotional

Question 2

What is the utilitarian benefit?

Answer 2

Frangible, functional benefits
- Returns on investment
- Minimize Risk
- Fixed dividend stream

Question 3

What is expressive benefit?

Answer 3

Conveys one’s values, tastes, or status

Question 4

What is an example of expressive benefit?

Answer 4

Investing in socially responsible, environmentally, or company that holds social values
Investing in a luxury brand, cutting-edge tech, and startups. Investors align themselves with the brand’s image

Question 5

What are emotional benefits?

Answer 5

Feelings or emotional satisfaction derived from investments

Question 6

What is an example of emotional benefits?

Answer 6

Knowing an investment will provide for future generations (kids, grandkids)… can provide pride
Selling a asset too quickly then watching its value skyrocket can lead to regret (system 1)

Question 7

What were people’s wants classified as in the 1st generation of behavioural finance?

Answer 7

errors

Question 8

What plays a crucial role in understanding and catering to investors’ wants?

Answer 8

marketing

Question 9

What is the primary reason people invest?

Answer 9

For financial security

Question 10

What is financial security?

Answer 10

when you feel comfortable affording your regular expenses and optimistic about your financial life in the future

Question 11

What does financial security represent?

Answer 11

Protection from poverty
comfortable retirement
Freedom from financial anxieties

Question 12

How does financial insecurity affect mental and physical strain?

Answer 12

constant worry about finances can cause stress, anxiety, physical health issues

Question 13

How does financial insecurity impact life choices?

Answer 13

limit opportunities and choices (housing, education, health care, leisure activities)

Question 14

How does financial insecurity affect relationship strain?

Answer 14

Financial strain in relationships can lead to conflicts

Question 15

What is the second-ranked reason people invest?

Answer 15

Helping children succeed

Question 16

Do investors separate their values from investments?

Answer 16

2nd generation behavioural finance does not separate values from investments

Question 17

How can investments influence someone’s social status?

Answer 17

Social status: airports, airplanes, neighbourhoods
Can open up exclusive investment opportunities

Question 18

If a neighbour’s income increases, how does that affect you?

Answer 18

It imposes expressive and emotional costs that are equal to the reduction in your income by the same amount of their raise

Question 19

How have women been treated in the finance world?

Answer 19

Historically the finance industry has been male-dominated, where women are seen as less knowledgeable or capable
Face challenges being promoted in finance firms
Suffer harsher penalties for mistakes

Question 20

When there are teams with diversified gender and culture what is the outcome?

Answer 20

the diverse teams outperform homogenous teams
(analysis)

Question 21

How are some groups discriminated against by financial institutions?

Answer 21

Financial institutions target vulnerable groups to have unfavourable terms like high-interest rate credit cards. They capitalise on knowing these groups don’t have many options

Question 22

What is the impact of Fintech?

Answer 22

algorithms can be designed to be neutral, reducing biases
online loan applications could approve loans based on objective financial data while ignoring race or gender.

Question 23

What is the fairness want?

Answer 23

Investors want fairness and transparency on fees and equitable treatment

Question 24

What is the annuity puzzle?

Answer 24

Low demand for life annuities despite their benefits in assuring income throughout life

Question 25

What is the bias in selecting arbitrators?

Answer 25

Investment companies push to select industry-friendly arbitrators

Question 26

What is an example of a tradeoff among our wants?

Answer 26

You can trade utilitarian benefits of maximizing wealth for expressive and emotional benefits
You have enough money and begin to spend on expensive clothes, cars… this is an expressive expense. Or begin donating lots to charity (emotional).