Advertising is everywhere we look, from social media to billboards and television trying to manipulate us into buying their product.
Whether you believe the advertising is effective of not, we are driven by a behavioural impulse. This is described in behavioural finance as framing. What is it and how can we overcome this bias? Elson Goh from EG Financial Services, joined Mike to explain this topic.
What is Framing?
Framing is when consumers are presented with the positive and negative aspects of a product. They will tend to avoid the negatives in favour of the positives. In a study by Professor Geoffrey Brown, he was trying to understand what makes people willing to buy a product. The way he described the product made a huge difference in uptake. First he described the product as an investments and only 20% were interested in purchasing. But when he framed it as a product that will generate income 70% were interested in purchasing. “Same product just phrased in a different way.”
The chances of winning the Powerball Lottery is 1 in 292,201,338! So why do we still buy tickets when the probability of winning is so low? Despite the odds because we are sold on the prospect of having our lives transformed.
“You don’t hear stories of a person saving money, putting money away in their super, doing the hard yards and retiring comfortably. And that is why, when you’re presented with a choice of where you’re going to invest your money, who do you think would win? The lure of that particular talk of the town (get rich quick scheme) or the boring consistent stuff? That’s where in terms of behavioural finance we have to be quite cautious in terms of how we are respond.
As we grow older, we tend to get it wrong when it comes to numbers. This is where we should consider getting some help from our family, friends or a trusted adviser as you can benefit from having a sounding board from someone slightly younger.
Do you have any thoughts or questions for Elson Goh? Let us know by texting or messaging us on socials. Listen to the full chat below!