Topic 2 - Investors Wants - Utilitarian, Expressive, and Emotional Benefits Flashcards
What are the three benefit categories of investing?
Utilitarian
Expressive
Emotional
What is the utilitarian benefit?
Frangible, functional benefits
- Returns on investment
- Minimize Risk
- Fixed dividend stream
What is expressive benefit?
Conveys one’s values, tastes, or status
What is an example of expressive benefit?
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
What are emotional benefits?
Feelings or emotional satisfaction derived from investments
What is an example of emotional benefits?
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)
What were people’s wants classified as in the 1st generation of behavioural finance?
errors
What plays a crucial role in understanding and catering to investors’ wants?
marketing
What is the primary reason people invest?
For financial security
What is financial security?
when you feel comfortable affording your regular expenses and optimistic about your financial life in the future
What does financial security represent?
Protection from poverty
comfortable retirement
Freedom from financial anxieties
How does financial insecurity affect mental and physical strain?
constant worry about finances can cause stress, anxiety, physical health issues
How does financial insecurity impact life choices?
limit opportunities and choices (housing, education, health care, leisure activities)
How does financial insecurity affect relationship strain?
Financial strain in relationships can lead to conflicts
What is the second-ranked reason people invest?
Helping children succeed
Do investors separate their values from investments?
2nd generation behavioural finance does not separate values from investments
How can investments influence someone’s social status?
Social status: airports, airplanes, neighbourhoods
Can open up exclusive investment opportunities
If a neighbour’s income increases, how does that affect you?
It imposes expressive and emotional costs that are equal to the reduction in your income by the same amount of their raise
How have women been treated in the finance world?
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
When there are teams with diversified gender and culture what is the outcome?
the diverse teams outperform homogenous teams
(analysis)
How are some groups discriminated against by financial institutions?
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
What is the impact of Fintech?
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.
What is the fairness want?
Investors want fairness and transparency on fees and equitable treatment
What is the annuity puzzle?
Low demand for life annuities despite their benefits in assuring income throughout life
What is the bias in selecting arbitrators?
Investment companies push to select industry-friendly arbitrators
What is an example of a tradeoff among our wants?
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).
