Psychological Perspectives on Financial Decision Making by Tomasz Zaleskiewicz & Jakub Traczyk

Author:Tomasz Zaleskiewicz & Jakub Traczyk
Language: eng
Format: epub
ISBN: 9783030455002
Publisher: Springer International Publishing

Experience-Based Knowledge and Age-Related Differences in Financial Decision Making

Repeated practice and experience allows people to bypass cognitive deliberation and instead apply heuristics or “rules of thumb” to make decisions (Gigerenzer, 2008; Reyna, Chick, Corbin, & Hsia, 2014). Heuristics are efficient and often effective, but they can lead to predictable errors, even among experts (Kahneman, 1991; Tversy & Kahneman, 1974). Even so, experts are better than nonexperts at distinguishing relevant from irrelevant information and using tools that foster good decision making within specific domains (Shanteau, 2015).

Expertise comes from experience and training (Ericsson, Prietula, & Cokely, 2007). People with more training in financial principles were better at applying cost-benefit principles to financial decisions, whereas work experience in the financial domain was beneficial when individuals were required to justify their decisions (Larrick, Nisbett, & Morgan, 1993; Fennema & Perkins, 2008). Experience and training can promote financial literacy, or the understanding of financial principles about risk diversification and inflation, as well as numeracy (Lusardi & Mitchell, 2007). Having greater financial literacy is associated with planning for retirement, having higher credit scores, and better debt management (Li et al., 2013; Lusardi & Tufano, 2009, Lusardi & Mitchell, 2014).

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