Healthcare Bill: Psychology Trumps

http://cnn.it/2m0TEnU CNN reports that Trump administration officials acknowledged to Republican senators at a White House meeting Tuesday that the House bill to repeal and replace the Affordable Care Act (ACA) is in serious jeopardy. http://politi.co/2mtb6wK Politico reports that “the Trump administration soon after taking office scaled back enrollment outreach during the critical final week of sign-ups. And yet “between Nov 1 and Jan 13 a total of 12.2 million people enrolled in Obamacare”. Why indeed?

The most palpable behavioral concept that makes Trumpare such a formidable legislation to champion is the Endowment Effect. People simply value stuff more because they own it. Indeed the very fact that ACA, however imperfect it may be,  exists and is owned and signed by millions, makes it such a formidable legislation to repeal. Millions are now emotionally invested in a crucial ambition: ambition to feel financially secure about their old age health. In the last seven years the healthcare has morphed from privilege to right. And aversion to losing  a right has has made ACA popular.

When champions of “repeal and replace” try to sell the insurance to the healthy millennials and make it more costly to aged baby boomers, their intentions become very apparent. They are practicing “Adverse Selection”, that is selling insurance to buyers who are least likely to demand large claims. While economics makes adverse selection a major profit and loss premise for insurance industry, it remains a political hardsell.

Champions of Trumpcare are trying to provide “choice” or “the opportunity to choose healthcare" as an advantage in comparison to ACA which offers a limited number of players. To an ambitious and (insecure) customer, the political cacophony around ACA is bad enough. Once the customer understands that he is expected to make a rational, cognitively complex choice in a confusing scenario, he inches towards status quo. This status-quo bias stipulates that most humans tend to maintain the current choice and change nothing. 

So as Trumpcare edges forward through the political process, psychology of the voters make the new legislation a risky political gamble. 

Traders, mortgage managers and bankers: Behavioral lessons from the Oscar-nominated The Big Short

BloombergView columnist and author Michael Lewis described Richard Thaler, the eminent behavioral economist as “either way widely disruptive” http://bv.ms/1SGKuV9. Thaler is in news for his new book Misbehaving, as well as for a short sequence in The Big Short based on Lewis’ book. In the film Thaler waxes eloquent about “extrapolation bias” as Selena Gomez equates side bets in blackjack to the synthetic Collaterralised Debt Obligations (CDOs). Sosubprime crisis is back in news adorned with Oscar hues. 

Below are three behavioral biases oft associated with subprime crisis and which characters in the movie embody.

Avoid overextrapolations of past data, rely on real time:

Humans (here mortgage managers, homebuyers) tend to be overenthusiastic about past data. They tend to be too optimistic about past inflations and pay more in present. Past low default rates could have persuaded the mortgage managers to imagine that past will repeat. Of course AAA ratings provided the extra optimistic cushion to believe in this past phenomenon.

Solution: Stay real and rely on real time data. Apps like Compass are beginning to get investors closer to real time real estate data.

When a product strikes a discordant note, pause and research 

The Big Short shows several crackerjack finance professionals repeatedly deluding themselves to believe in subprime securities.

Cognitive dissonance (CD).  Some evangelist characters in the movie tried to point out and prove the price discrepancies in subprime and home loans data. But the majority of real estate decision makers were loath to acknowledge the red flags as that would counter their justification of selling a lucrative product. 

Solution: Do not let yourself to be manipulated to believe in the optimistic outcome. If a product induces dissonance try to minimize it by by more research into the product. Make sure there are no untruths.

Embrace Ambiguity, do not let the feeling of loss overcome sell decisions

The Big Short ends when the evangelists in the film fathom that loan defaults will lead to a run on the banking system. Why did so many people sell at the same time? 

Ambiguity aversion (AA). People do not like to be in situations where they feel  incompetent, when they cannot assign a probability to a future outcome. So when they see evidence of the negative outcome in other people’s investment, they tend to remember their own painful losses and feel less inclined to  bear a future loss (or take risk). Solution: Be aware of loss aversion before selling. 

Hi. My name is Ritu Gurha Lisso. I am a social media content writer and a behavioral finance enthusiast. As a polyglot finance journalist I have worked in India, South Korea, Singapore, Germany and USA.  I am passionate about creating social content and social strategy. Please feel free to reach out and connect with me @ritugurha.  

Traders: 3 Behavioural tips to navigate the Yellen Hike Event

Traders, as you know, economic influencers are weighing in on December 16 interest rate hike. Larry Summers, for example, pronounced that plausible bubbles are no longer plausible. In the same breadth he also said that increasing rates as a prophylactic against financial instability is quiet odd. http://bloom.bg/1lLpiBy 

Given that the landmark hike moment is inevitable, here are 3 behavioral biases which you need to be aware of when dealing with new events.

Economists really want Janet Yellen to explain what gradual means https://t.co/V0eEMp993o pic.twitter.com/6RgyyrtZdS

— Bloomberg Business (@business) December 11, 2015

Embrace Ambiguity: Know your asset: Research has revealed that if you are feel competent enough to understand your asset you can guard against ambiguity aversion. In other words you would be better able to assign probability to an outcome then just pure conjecture or following the herd. Competence will help you better embrace ambiguity.

Don't let difficult and new manipulate: Compare if it is worth it. Risk perception increases when we compare the new with a situation which was familiar and therefore easier to analyse. So although availability of low interest rates is familiar, implications of investing in familiar should not be compared to the implications of unfamiliar. Analyze the risk of the current policy without comparing the advantages of past. 

Don't amplify Loss: Be aware that if loss coincides with a new event, its psychological impact gets magnified. The real absolute loss can still be contained. Guard against this amplification effect.

Hi. My name is Ritu Gurha Lisso,  a business journalist plus content writer plus social marketing pro all folded into one. I am a polyglot and have lived and worked in Asia, Europe and now USA. I have managed to meander from art reviews to bonds market analysis and behavior finance. In my current avatar as a business communications professional and a behavioural finance enthusiast, i am passionate about creating social content and social strategy. Please feel free to reach out and connect with me @ritugurha. 

Wealth Managers: 3 Behavioral Tenets to tackle the tech-savvy Millennials

CMOs, and finance product developers have been surveying the financial habits of millennials with passionate alacrity. Merrill Lynch, for example, discovered that the millennials want to remain in the driver seat when it comes to investments http://bit.ly/1zYRdAb Goldman Sachs found it crucial that the millennials are the first generation of digital natives “used to instant access to price comparisons, product information and peer reviews.”  http://on.mash.to/1Y3kZx4

 As a behavioral financial enthusiast I would like to give 

three tips for those seeking to cultivate the millennial wallet.        

Some Brands Millennials Love

  Navigate thrift: Millennials’ conservative Mental accounting: Scarred by  subprime crisis, the Euro crisis and student debt, millennials are trust  deficient and conservative mental accountants. Their meagre economic  assets are clearly invested in their lifestyle, and belief in remaining debt  free. To make them part from their cash into a financial product, the  advisor has to make sure that he is addressing that internal account  which is for investing (and not necessarily for any particular class of  asset). So platforms with multiple assets count.   

   Make them explore: (representative herustics, confirmation bias):  Millennials have grown up steeped in technology. Advisors and  marketeers need to counter this salience, this innate affinity to  technology by making non technology assets in portfolios more cool. Pointing out the green value of an asset or  its intrinsic social value will make the portfolio more attractive. 

 Exploit the Herding: Millennials are sociable, (social) community oriented and as a group, scarred by their past.  So they are “underreacting” to  retirement and investment. As in consumer marketing, devise platforms where  social peers can compete and connect about retirement and investment and learn about simple facts like  “equities have had a bull run for last five years”. A peer group “Urgency” about investment and retirement will  create a positive dynamic.




Hi. My name is Ritu Gurha Lisso,  a business journalist plus content writer plus social marketing pro all folded into one. I am a polyglot and have lived and worked in Asia, Europe and now USA. I have managed to meander from art reviews to bonds market analysis and behavior finance. In my current avatar as a business communications professional and a behavioural finance enthusiast, i am passionate about creating social content and social strategy. Please feel free to reach out and connect with me @ritugurha.

CMOs, CIOs and Bankers: 3 behavioral tenets to spur innovation and ally with fintechs

As CMOs and CIOs in banks you probably know that Gemma Godfrey @GGodfrey, a fintech influencer, championed customer-centric approach http://bit.ly/1I4Azqi as a key response to disruptions that legacy bankers are facing from startups. As a behavior finance enthusiast I would like to give 3 tips to help you convince your managements that fintech rocks. 

The debates in this sector have acquired passionate hues. For example in her blog thebarefootvc.com, Jalak Jobanputra reports how she debated with executives of Wells Fargo, among others, whether millennials will stop using banks. Are Banks the next Dinosaurs http://bit.ly/1I8lUoF was the title of the debate. (The above blog has been deleted but was active in November when this post was being written)

Banking Reinvented https://t.co/3JVQWl2jgy @seccobank pic.twitter.com/aCnNNGgWyO

— Chris Gledhill (@cgledhill) October 5, 2015

    In another Business Insider article http://read.bi/1N25xeo focus was how JPMorgan and Wells Fargo are curtailing info aggregators like Mint and Quicken citing security concerns.

In November however, Mckinsey partner Susan Lund @SusanLund_dc tweeted about http://bit.ly/1lcDxOT, a Royal Bank of Canada initiative where fintechs (would-be Unicorns) and legacy banks were cast as allies.

Drawing from tenets of Behavioural Finance here are my three recommendations that will help you persuade decision-makers in your legacy companies to jump on the innovation bandwagon before it is too late (read costly).

·      Shift the argument from risk to awareness of underinvestment: (Loss aversion bias, status quo bias) As in savings for retirement, underinvestment in innovation is a result of tendency to fear loss and to procrastinate. So current cash flows, short term projects seem crucial compared to putting money in intangible (mythical like unicorn) future gains. Once your management becomes aware of their status quo bias, they hear you more clearly that a radical innovation budget will counter disruption more efficiently. 

·      Think future scenarios for strong decisions: (Bias: sunk cost fallacy) Far too many investors (managers) tend to defend their cumulative prior investments when making future decisions. Even when evidence suggests that current costs outweigh the potential benefits, they tend to act in a way that justifies past decisions. To counter this dwell on future scenarios. Prove for example that banking will be “on the go”.  Tell them collaborating with unicorns make sense as they have yet to achieve scale, if they can be co-opted the legacy bankers can share the fruits of disruption.

·      Make new familiar: As in personal finance, familiar looks more secure and less risky, tempting enough to forego potential benefits of the unfamiliar. So to make decision-makers feel more comfortable with disruption, dwell on new terminology (cyber-security, data monitization, blockchain) all repeated to sound do-able, accessible. If you are on the fintech side of the wall make scaling up cool and necessary.

So starting today, you need to connect with disruptors and disruptions to prevent from becoming a dinosaur. Embrace innovation. Be aware and make aware to counter fear. http://bit.ly/1KFaU1I.

Hi. My name is Ritu Gurha Lisso,  a business journalist plus content writer plus social marketing pro all folded into one. I am a polyglot and have lived and worked in Asia, Europe and now USA. I have managed to meander from art reviews to bonds market analysis and behavior finance. In my current avatar as a business communications professional and a behavioural finance enthusiast, i am passionate about creating social content and social strategy. Please feel free to reach out and connect with me @ritugurha.