Investment decisions based on smartphone research

We think that using our smartphones to do research — including research for investment decisions — is a good thing. After all, how could using this tool to access more information be bad?

jif peanut buttertuna can

 

It turns out smartphones and investing go together like peanut butter and tuna fish. Two things that are just fine on their own but should not be combined.

I recently did a program on behavioral economics for PIABA attorneys — attorneys who, like me, represent investors in FINRA arbitrations to recover their losses — with mediator Kathy Adams and fellow PIABA member Patti Vannoy. We talked about how our brains are not designed to deal with the kind of information overload we experience every day. When faced with information overload (like in choosing investments), our brains use shortcuts (heuristics) to make decisions. We have decades of behavioral economics research by many fine academics including Nobel Prize winners Richard Thaler (from my alma mater UChicago and co-author of Nudge) and Daniel Kahneman (author of Thinking Fast Thinking Slow).

Investment decisions require time and attention

Making investment and other financial decisions requires information, concentration and reflection. As this recent Wall Street Journal article by UCLA professor Shlomo Benartzi says, “Not so long ago, the main scarcity was information—we lacked the data to make informed financial decisions. But now we are drowning in data. What we lack, instead, is the ability to properly process it. The price we pay for that may be subtle, but it’s hardly insignificant.”  https://www.wsj.com/articles/the-high-financial-price-of-our-short-attention-spans-1540174321

Years ago we needed a financial advisor to access information about investment options. Now we need a financial advisor to help us navigate the overwhelming amount of information (and misinformation) about investment options that are available online.

Don’t do investment research or investing on smartphone

Dr. Benartzi’s research shows that people tend to perform worse on a test of financial literacy when given the questions on a smartphone, at least compared with those subjects taking the same test on paper. He thinks that this could be because people tend to read faster (i.e. less carefully) on their smartphones. I think we also tend to make quicker (even impulsive) decisions on our smartphones.

According to Dr. Benartzi, “the news gets even worse. Recent work by Adrian Ward, Kristen Duke, Ayelet Gneezy and Maarten Bos shows that just having your smartphone next to you—even if it isn’t turned on—can diminish your cognitive capacity. According to the research, subjects with a phone nearby perform significantly worse on measures of attention, working memory and fluid intelligence than those whose phones were in another room. The researchers speculate that the effect exists because the mere proximity of a smartphone causes us to monitor it—we’re waiting for those alerts and interruptions—and that monitoring takes up attentional resources. This suggests that we should try to avoid using our smartphones, or even being close to them, when making financial decisions.”

How many of us never let our smartphones out of our sight?  I need to change how I make investment decisions. 

Here are some other posts about behavioral economics:

http://secdefenseattorney.com/blog/2018/08/24/our-brains-cause-us-to-make-bad-investment-decisions/

http://secdefenseattorney.com/blog/2017/10/15/economics-101-not-always-right/

http://secdefenseattorney.com/blog/2017/12/15/how-real-human-beings-make-decisions/

http://secdefenseattorney.com/blog/2017/10/09/behavioral-economics-improving-practices-at-the-irs/

tiger logo

Lisa Bragança recovers losses for investors all over the country, protects whistleblowers, and defends individuals and businesses in government investigations. As a Branch Chief with the SEC Division of Enforcement, Lisa conducted and supervised insider trading investigations and a wide range of investment fraud and Wall Street misconduct. Lisa has a BA in Economics from the University of Chicago and a JD/MBA from the University of Chicago. Sadly, Richard Thaler was not at the University of Chicago when she was there.

You can reach Lisa at (847) 906-3460 or Lisa@SECDefenseAttorney.com. www.SECDefenseAttorney.com

http://secdefenseattorney.com/about-lisa-braganca/

Disclaimer: This information is for general purposes only and should not be interpreted to indicate a certain result will occur in your specific legal situation. The information on this website is not legal advice and does not create an attorney-client relationship.