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1.2.2 Thought Trap: Customers Are Rational and Informed

In the media and in the banking sector we constantly encounter the two terms Homo oeconomicus[1] and the informed customer.

[2]). People always seek certain patterns of action and safety nets (Jurczyk 2006). For instance, customers have a general aversion to losses and often place greater value on these than on any profits gained. Customers' decision patterns are often very far removed from that which one might call rational. According to the findings of Kahneman and Tversky (1979) and Thaler (1991), the rational and efficient Homo oeconomicus is rather a delusion or a thought trap that has little in common with reality.

If we transfer the findings from behaviour-oriented financial market theory to the behaviour of bank customers, we arrive at new findings, and possible thought traps can be recognised and avoided. According to Shleifer (2000), Shefrin (2002), Kahneman (2003) and Kahneman and Tversky (1973), the findings of Behavioural Economics can be divided into four main areas:

• Heuristics (rules of thumb)

• Framing effects

• Loss aversion

• Cognitive dissonance

The researchers place the person, i.e., the customer, as an individual at the core of their research.

From the perspective of behavioural theory, customers cannot fully process the available relevant factors. Due to the amount of information, but also become more is being constantly generated, it is difficult to grasp everything. Customers therefore try to simplify as much as possible the content of the information and their possible impact. In order to manage the high degree of complexity the customer is forced to regularly employ heuristics. According to Goldberg and von Nitzsch (2004, S. 42), heuristics mean “rules or strategies for processing information that lead to a fast result, but not one that is guaranteed to be perfect, in brief: rule of thumb”. Such rules of thumb are applied consciously or subconsciously by customers.

Kahneman and Tversky (1972, 1973) also describe the phenomenon of framing. Simply changing the way in which options are phrased already influences the perception of the matter and can lead to completely different decisions. The framing effect can be better understood by means of an example. In health promotion campaigns the damaging long-term consequences of smoking or obesity are frequently highlighted by appealing to fear. This is known as a loss frame. With preventative measures, however, messages that are embedded in a gain frame are more successful. The positive consequences of the desired change in behaviour are emphasised (Rothman et al. 1993; Jones et al. 2003; Meyerowitz and Chaiken 1987).

Loss aversion refers to the aforementioned tendency to place greater weight on losses than on gains. For example, customers often get more annoyed about the loss of x EUR than they would delight in the gain of the same sum. Kahneman and Tversky (1979) were also responsible for discovering this irrational customer behaviour.

Furthermore, customers frequently demonstrate a distinct desire for harmony. Many decisions with two or more alternatives present customers with a conflict. They look for arguments and information that justify the decision reached. This inner conflict is known in the field of psychology as cognitive dissonance, a kind of “disturbing emotion”. The core of this theory is that every individual tries to remove contradictions of perception and thought as quickly as possible, because they are considered to be unpleasant and burdensome. The phenomenon can be observed in the famous example of smokers who try, with the help of fudged arguments to trivialise the dangerous effects of smoking (Brehm and Cohen 1962).

  • [1] The Homo oeconomicus is characterised by unlimited rational behaviour. For customers, their pursuit of maximum utility is characteristic, while at the company level the primacy of profit maximisation dominates (Gabler Wirtschaftslexikon 2013a)
  • [2] A further additional characteristic in the context of Homo oeconomicus is the assumption that seamless information is available about all alternative decisions and their consequences for the customer in the sense of complete market transparency (Gabler Wirtschaftslexikon 2013a).

    If we combine both terms it is easy to get the impression of the purely rationally thinking customer who is comprehensively informed. Both terms are thought models that help to better understand the behaviour of customers and in part to predict it. However, with regard to banks, both thought models can lead to a hazardous thought trap by assuming that customers will act as expected and thus that their behaviour is predictable and calculable. This trap is based on the widespread assumption that customers behave in a rational and informed manner in financial matters. The field of Behavioural Economics studies this phenomenon and associated behavioural patterns as a part of business studies. It analyses and interprets human behaviour in business situations, and observes such situations in which people act contrary to the Homo oeconomicus. The field of Behavioural Finance is concerned with irrational behaviour on financial and capital markets. In addition, anomalies in customer behaviour that can arise from the irrational interplay between the bank and the customer, for example, are also examined, recorded and interpreted (Rapp 2000). Behavioural Economics also addresses the systematic mistakes made by customers when making decisions (Fuller 1998). The objective is not only the detection of such anomalies, but also of the systematics of the resulting actions of the customer.

    Until the end of the last century the theory of efficient markets clearly dominated financial market theory. The publication of the research results of Kahneman and Tversky (1979) and Thaler (1991) led to a discussion about the meaningfulness and practicability of this theory. Then, at the beginning of this century, it was shown that people sometimes act contrary to the theory of rational decision-making. Kahneman and Tversky (1979) showed how market participants deal systematically with uncertainties and information in practice, and which techniques people used in the face of complex problems. What is remarkable is that people ignore, in part, previously postulated laws of economics and mostly act according to objective criteria. For example, if the value of an item is to be determined, people are generally influenced by self-chosen criteria and the “rule of thumb” (heuristics

    {{ Heuristics are approaches to solving problems for which there are no clear solutions, or only ones that appear too complex. “Rules of thumb” are used on the basis of subjective experience and passed-down behaviour, especially in problem areas that are difficult to comprehend (Gabler Wirtschaftslexikon 2013b)
 
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