Week 6 Flashcards
Define Integral emotions
Integral Emotions
are feelings that come directly from the decision you’re making
- Example: if you feel nervous about making a big investment (the possbility of losing money is on your mind), that fear is tied to the actual decision you’re making
how can Integral emotions may be stimulated by various factors that are directly related to a choice or decision? Please explain and provide examples
Integral emotions can both support and distort financial decision making.
For example, they may be evoked by:
§ personal values and preferences toward choice alternatives,
§ the analysis of numerical values, such as probabilities and outcomes,
§ familiarity and personal experience, or
§ the vividness of mental images of potential choice consequences.
How can Integral Emotions support and distort decision-making?
Support: Integral emotions can serve as valuable cues, helping individuals make decisions aligned with their values and experiences.
Distort: They can also introduce bias, leading to irrational or overly emotional decision-making, such as panic selling in the stock market due to fear.
What are/explain the four functions of integral emotions:
1. Information Source
2. Translate more complex thoughts into simpler evaluations
3. Spotlight Effect
4. Motivation for Deeper Analysis
Four functions of integral emotions:
- Information Source: Emotions provide feedback based on past experiences, guiding decisions. For example, people who have experienced a natural disaster are more likely to buy insurance.
- Translate more complex thoughts into simpler evaluations: Emotions act as a ‘common currency,’ helping to compare unrelated factors like money vs. health vs. time.
- Spotlight Effect: Emotions highlight specific aspects of a decision that might otherwise be overlooked. For example, fear of investing in a company might stem from awareness of its past failures.
- Motivation for Deeper Analysis: Strong emotions encourage further research. People experiencing fear in financial decisions are more likely to seek additional information about potential risks and outcomes.
How can emotions cloud judgment in decision-making?
❌ Strong emotions can make individuals ignore critical information.
- Example: A buyer emotionally attached to a house overlooks structural issues like leaks or noise.
define Anticipated Emotions Feedback Loop
Anticipated Emotions Feedback Loop: The theory proposes that the relationship between emotions and behaviors is circular in nature.
People learn to anticipate emotional outcomes and behave to increase the likelihood of experiencing the emotions they prefer.
Also, negative experiences (e.g., regret, disappointment) may discourage repeating a choice
What is Regret vs. Anticipatory Regret?
Regret – Feeling responsible for a past poor decision.
Anticipatory Regret – Imagining future regret before making a decision.
- Useful for cautious decision-making (e.g., avoiding risky investments out of fear of future regret).
Define Incidental emotions
Incidental emotions
are feelings that come from something else and accidentally affect your decisions.
Example: You had a bad morning because your coffee spilled, and later, you feel annoyed while choosing an investment, even though the two things aren’t related.
Incidental Emotions: How does mood influence how we interpret information?
People perceive reality differently based on mood:
Positive mood → Optimistic evaluation of options, leading to risk-averse behavior to maintain the positive state.
Negative mood → More systematic, analytical thinking but also risk-taking behavior as people seek a way to improve their mood.
- Example: On a good day, a person may be more confident in their financial plans, while on a bad day, they may second-guess their choices.
How does mood affect stock market behavior?
Research shows mood affects financial markets.
- Weather-based mood shifts → Stock market returns tend to be higher on sunny days and lower on cloudy days because investor sentiment is affected.
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Sports events → Stock markets in countries where soccer is popular tend to drop after a major loss by the national team.
- Example: On a sunny day, investors feel more optimistic and buy stocks, while on cloudy days, they become risk-averse and sell.
What is the ‘Inverse’ Impact of Mood on Decision-Making?
Mood acts as an unconscious decision-making factor, guiding how people assess risks and opportunities.
Positive mood → Less risk-taking (to avoid ruining happiness).
Negative mood → More calculated risk-taking (to improve mood).
- Example: A happy investor avoids risky stocks, while a stressed investor seeks high returns.
Define Stress
Stress: arises when we perceive that we cannot adequately cope with the demands being
made on us or with threats to our well-being.
- Note that stress is an external event.
- If there is no external issue, there is no stress.
Result from external stimuli
Define Anxiety, does anxiety linger after stressor is gone?
Anxiety: results from internal forces arising from unhealthy attitudes towards a particular idea or concept.
- Stress can be eliminated when the external stimulus is removed, but anxiety tends to linger well after the stressor is gone.
- While an external stimulus might serve to trigger anxiety, removing it may have no effect on the anxiety since it is the internalized idea that causes the anxiety rather than the actual external trigger.
Define Fiancial Stress
Financial Stress: arises when an external financial event forces a person to reevaluate their financial resources (money, knowledge, or experience).
Key Trigger: A person experiences financial stress when they believe they cannot meet a financial obligation.
Process:
- A financial stressor occurs (e.g., unexpected bill, job loss, tuition payment).
- The person assesses whether they can handle it.
- If they perceive they cannot cope, they experience financial stress.
Define Financial Anxiety
Financial anxiety: is a psychological condition where a person has an unhealthy attitude toward thinking about, engaging with, or managing their personal finances.
Key Trigger: Unlike stress (which is external), financial anxiety stems from internal beliefs and fears.
Process:
- A person develops negative financial beliefs (e.g., “I’m terrible with money”).
- These beliefs create chronic worry about financial matters, even if there’s no immediate crisis.
- Anxiety leads to avoidance behaviors, making financial problems worse.
Financial Stress Vs Financial Anxiety
Financial Anxiety:
- differs from stress because it arises from internalized fears and beliefs, not just external triggers.
- less likely to get help, turn away from the problem
- Example: Someone may constantly worry about money even if they have no financial problems, due to deeply ingrained fears.
Financial Stress: more likely to seek help, willing to face the problem, energized and capable
Stress: A Two-Step Process
Step 1: An external event (stressor) triggers a reaction.
Step 2: The individual appraises their ability to handle the situation.
- If they believe they can cope, stress is reduced. If they believe they cannot, stress arises.
- Example: A sudden large expense (e.g., medical bill) causes stress if a person believes they lack the resources to cover it.
What are ways to help Clients with Financial Stress
Clients with stress are often motivated to act, but they need guidance and structure.
Advisors can help by:
- Reframing the problem positively – Remind clients of past successes in managing finances.
- Problem-focused discussions– Directly address financial concerns.
- Actionable To-Do Lists – Provide clear steps to reduce stress and move forward. (Ex. structured repayment plan)
What are ways to help Clients with Financial Anxiety
Anxiety often leads to avoidance rather than action, so advisors must take a different approach.
Key strategies:
- Provide a safe space – Create a non-judgmental environment for discussions.
- Offer step-by-step support – Walk clients through financial tasks together.
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Recognize growth – Acknowledge small wins to build confidence.
- Example: If a client is too anxious to check their investment portfolio, an advisor can gently guide them through it rather than forcing immediate action.
Why is it important to recognize the Difference Between Financial Stress and Anxiety
Why Differentiation Matters
- Clients with stressneed action-oriented support and encouragement.
- Clients with anxiety need emotional reassurance and space to process their fears.
- Advisors who understand the difference can adjust their communication style for maximum effectiveness.
is Fiancial Stress common among all income levels ?
Common among all income levels, even affluent households
- Financial stress is not limited to low-income individuals.
- Even those with high salaries or large assets can feel financial stress due to competing obligations (e.g., tuition costs, mortgage payments, investment risks).
what is teh key factor to stress?
The key factor is perception—people experience stress when they believe they lack resources to manage financial challenges
