Santa left us an unexpected gift: two small teachings!
The month of December and its unavoidable figure - Santa Claus - are now behind us! Regardless of the gifts placed in our shoes, he offers us a playful parallel with some of the trends polluting our decisions.
An important choice of color...
It was impossible last month not to be attracted by a Santa Claus declined in various forms (costumes, stuffed animals, posters ...) and systematically bright red ... A choice of color important in many areas and especially in China where red is synonymous with prosperity ... and which can even influence some of our management acts
Thus, a study(1) teaches us that we reduce our acceptance of the risk of loss by 20% when it is expressed in red, the usual color of danger! Another effect of the color is that we are more pessimistic about the future performance of a stock when past negative performances are expressed in red (14.8% less propensity)! Experiments conducted with yellow and blue (two colors perceived by our brain as being as different from black as red) confirm that only the color of Santa Claus is involved!
If the framing bias, which is defined by the influence of the mode of presentation on the decision, generally refers to the arguments put forward, this study opens up a new dimension: it makes us aware of the influences linked not to the presentation of the substance, but to the form. The impact of the form on our financial decisions is certainly worth keeping in mind at a time when society is evolving more and more towards visual communication, using images and videos!
... but a belief close to those that persist in adulthood!
The field of research being limitless, there are a few studies trying to explain why adults encourage children to believe in Santa Claus(2), but especially one(3) demonstrating rationally - if need be! - that 350,000 tons of gifts traveling at 650 miles per second (that is, nearly 4 billion kilometers per hour) puts too much pressure on Santa Claus’s shoulders!
If children find a certain happiness in believing in Santa Claus, other beliefs (erroneous or true) also affect the not-so-young. Two studies from 1982 and 2010(4) conclude that more than 50% of students do not question the result given by a calculator - authoritative - previously rigged for the experiment, after seven wrong answers to easy problems!
We easily cling to beliefs when making decisions: unlike simple information, the belief is anchored in us and is imposed as a matter of course without being questioned. The consequences of the usual beliefs (full market efficiency, preconceived ideas about asset classes, certainty about the right allocation, etc.) in financial decisions are numerous: they range from the "simple" risk of scamming (belief in "miraculous" investments), to the risk of bubbles or crashes (collective beliefs), to erroneous individual decisions. So let's not hesitate to question ourselves and to question what seems obvious!
Thank you to Santa Claus for believing in me and letting me write about his outfit and the belief he inspires.
(1) « Visual Finance: The Pervasive Effects of Red on Investor Behavior »
(2) "Contribution à une théorie de l'abandon des croyances : la fin du Père Noël", Gérald Bronner, 2004
(3) “Is there a Santa Claus?” by Richard Waller published in January 1990 in Spy Magazine
(4) Electronic Bullies », Lois Timnick, February 1982 and “The Authority of the Calculator in the Minds of College Students” by Bob Glasgow et Barbara J. Reys, 2010
WARNING
This document is an advertisement and has no contractual value. Its content is not intended to provide an investment service, nor does it constitute investment advice or a personalised recommendation on a financial product, nor insurance advice or a personalised recommendation, nor a solicitation of any kind, nor legal, accounting or tax advice from any entity under the responsibility of Société Générale Private Banking.
The information contained herein is provided for information purposes only, is subject to change without notice, and is intended to provide information that may be useful in making a decision. Past performance information that may be reproduced is not a guarantee of future performance.
Before subscribing to an investment service, financial product or insurance product, the potential investor (i) must read all the information contained in the detailed documentation for the service or product in question (prospectus, regulations, articles of association, key investor information document, term sheet, information notice, contractual terms and conditions, etc.), in particular those relating to the associated risks; and (ii)consult his legal and tax advisors to assess the legal consequences and tax treatment of the product or service being considered. His or her private banker is also available to provide further information, to determine with him or her whether he or she is eligible for the product or service under consideration, which may be subject to conditions, and whether it meets his or her needs. Accordingly, no entity within Société Générale Private Banking can be held responsible for any decision taken by an investor solely on the basis of the information contained in this document.
This document is confidential, intended exclusively for the person to whom it is given, and may not be communicated or brought to the attention of third parties, nor may it be reproduced in whole or in part, without the prior written consent of Société Générale Private Banking. For more information, click here.
The sale of a business: Key issues and best practices?
Hospitality is a vibrant sector that’s always on the move and influenced by a multitude of economic, social and...
When it comes to personal finance, we’re usually advised to keep a little distance, figuratively, from our financial...
Returning from vacation, this article draws a connection between the beauty of archaeological sites and that of a vacuum...
The sun is out and so are the lawnmowers. Cue the friendly banter between enthusiasts of the walk-behind mower, the...