HAIFA, ISRAEL – A new study has found that reading about risky strategies affects financial decision making – even when the stories are totally irrelevant.
“Priming, the underlying psychological mechanism, is well-known in psychology, but to date was not analyzed with regard to financial decision making the way we did,” said Dr Doron Kliger, who carried out the study along with his student Dalia Gilad at the University of Haifa.
The study subjects were divided into two groups. One was given a story about a person who took risks and consequently made big profits. The second group read a story about someone who refused to take such risks and managed, by doing so, to avoid great losses. Both groups were given the story in the context of testing their memory abilities.
After reading the story, the participants were given financial reports of an unnamed Nasdaq-traded stock. The financial information given to the two groups was identical – the only difference was the story that preceded it. After reading the stories, the participants were asked questions regarding the traded stock.
The group that read about successful risk taking attributed a higher value to the stock investment than the second group.
Priming is a known psychological phenomenon, influencing memory retrieval processes by exposure to different stimuli. Dr Kliger explains: “Consider, for example, a situation where you have returned home after watching a horror movie. While climbing the stairs, you hear the garden gate creaking. A common fear under such circumstances might be that there is a burglar outside. Hearing the same sound after returning from a tedious workday at the office, if noticing it at all, one would probably interpret it in a banal way – ‘Whoops, forgot the cat outside again’. In this example, the horror movie is the priming substance, affecting subsequent behavior.”
The fact that priming takes a role in decision making manifests the existence of two systems: a rational, cognitive one, and a subconscious “gut feeling”, Dr Kliger added.