How comparisons can help solve impossible decisions for retail investors

April 12, 2023 Copyright © DCisions Limited 2011, All Rights Reserved. Patent No. 7,844,527. 1

How comparisons can help solve “impossible” decisions for

retail investorsJon Hoar, Sept 2012


What do you do when you can’t make a decision?



Why are investing decisions so difficult?




How comparisons help decision-making




How comparisons help decisions-making

How comparisons can make investment decisions easier


We want certainty about, and reward for, our decisions

Certainty

Reward

Immediate Far off

Buyer’s remorse



Certainty

Reward

Immediate Far off

Buyer’s remorse



Certainty

Immediate Far off

Buyer’s remorse

Reward



Certainty

Immediate Far off

Reward

Buyer’s remorse


Focus Focus

Work out to lose weight Experience of exercise

Planned work-out time Planned work-out time

More Less

Source: When thinking about goals undermines goal pursuit. Fishbach and Choi, 2012

Long-term goals as motivation?


Focus Focus

Work out to lose weight Experience of exercise

Planned work-out time Planned work-out time

More Less

Actual work-out time Actual work-out time

34 mins 43 minsSource: When thinking about goals undermines goal pursuit. Fishbach and Choi, 2012

Long-term goals alone aren’t rewarding enough to motivate



Certainty

Reward

Immediate Soon Far off

Buyer’s remorse





Venti black filter coffee

Calories 6

Fat 0.1

Saturated fat 0.0

Venti moccha frappuccino, with whipped cream

Calories 437

Fat 14.6

Saturated fat 8.6

We can use comparisons to: choose our morning drink

Source: Starbucks


We can use comparisons to: choose how to burn it off

Source: calorieking.com


We can use comparisons to: find a good walk

Source: walkit.com


We can use comparisons to: find a good walk

Source: walkit.com


We can use comparisons to: choose the right dog

Source: findthebest.com


Can comparisons help investors make confident decisions?


5 oz

10 oz

5 oz cup 10 oz cup

Source: Attribute Evaluability, Its implications for Joint-Separate Evaluation Reversals and Beyond. Christopher K Hsee 1993

Continuous factors, like returns, are hard to evaluate


5 oz cup

7 oz of ice cream

10 oz cup

8 oz of ice cream

5 oz

7 oz8 oz

10 oz




5 oz cup

7 oz of ice cream

10 oz cup

8 oz of ice cream

5 oz

7 oz8 oz

10 ozSeparate evaluation

XSource: Attribute Evaluability, Its implications for Joint-Separate Evaluation Reversals and Beyond. Christopher K Hsee 1993



5 oz cup

7 oz of ice cream

10 oz cup

8 oz of ice cream

5 oz

7 oz8 oz

10 ozJoint evaluation




Can comparisons help investors make confident decisions?

+£558+10.7%

=Continuous factor: Hard to evaluate





We can use comparisons to: assess performance

Welcome Jon, let’s see how you’re doing…

Total value

£5,756Your gain

+£558A fair gain

+£533Your return vs.

fair

+£25

Your investment delivered a result better than the fair return benchmark in this time period

Your riskYour returns

12 months

Everyone’s returns


We can use comparisons to: validate our choices

Welcome Jon, let’s see how you’re doing…

Your gain

£558Highest gain

+£807Lowest gain

+£33Your rating

63%

Your investment outperformed more than 63% of people who invested at this risk level

Everyone’s returns Your riskYour returns

12 months


People who invested £100 3 years ago

£85Worst return

£129Fair

return

£186Highest return

We can use comparisons to: self-select risk

Source: InvestorBee.com


People who invested £100 3 years ago

£27Worst return

£139Fair

return

£240Highest return

We can use comparisons to: self-diagnose risk appetite



Aberdeen Managed Distribution

Henderson Managed Distribution

Brand Well known Well known

Morning Star rating Bronze

Suitability Managed distribution Managed distribution

Fee 1.32% TER 1.44% TER

Net return on £100 after 3 years

£146 £148

We can use comparisons to: optimise our choices






Aberdeen Managed Distribution

Henderson Managed Distribution

Brand Well known Well known

Morning Star rating Bronze

Suitability Medium-low risk Medium risk

Fee 1.32% TER 1.44% TER

Net return on £100 after 3 years

£146 £148

Joint evaluation

+18% +11%




13%of members increased

saving rate

50%Increase in

average saving rate

+340%More

responsive campaign

We can use comparisons to: motivate ourselves


Make investments evaluable: eliminate buyer’s remorse

Certainty

Reward

Immediate Far off

Buyer’s remorse

PerformanceRiskProgress

Continuous factors: hard to evaluate separately

!


Make investments evaluable: eliminate buyer’s remorse

Certainty

Reward

Immediate Far off

Buyer’s remorse

PerformanceRiskProgress

Comparisons enable easier joint evaluation


Thank you

Questions?

Economy & Finance

How comparisons can help solve *impossible* decisions for retail investors

How comparisons can help solve impossible decisions for retail investors