Is it ever okay to be manipulated?


As a financial educator and consultant, I have three main objectives. First, I have to work with my clients to determine what they deem to a financial success.  This could mean having a certain amount of savings or assets or having a certain lifestyle.  Financial success is very subjective. It means different things to different people. The second objective is to help my clients change their behavior to achieve their financial success. Finally, I have to evaluate their performance, perhaps monthly, quarterly, or annually. That’s it, pretty simple. My clients understand this perfectly and they establish achievable, realistic financial goals.  They have the knowledge. However, knowing what to do, does not always translate into doing what you’re supposed to do. Beautifully written financial goals and plans are useless if the client doesn’t put it into practice.  The most crucial part of the whole process is to change one’s behavior so engender financial success. This is where it sometimes falls apart.


Behaviour change is the toughest part of the process. It’s sometimes a long drawn out process fraught with mishaps and setbacks.  The good news is that behavioural change almost requires relapsing into old patterns before breaking through for good. You must not be discouraged when you make progress and then slip back into old behaviour.  Researchers have been studying this issue of how to effectively elicit behavioral change for decades and they have come up with two models for changing behaviour. The first one involves changing people’s beliefs and attitudes which will then change their behavior. This is the longer route for effecting behavioral change. The other is changing the environment/context in which the person operates so that their behavior changes to match the environment. It has been shown that subtle changes to the environment/context can have a significant effect on behavior. People don’t always behavior rationally or consistently as such if we can circumvent changing one’s beliefs and attitudes and instead focus on changing the behaviour/context then the chances of success increase.  Here are just two examples of how a change in context can affect behaviour.


The first is defaults. Defaults are those preselected options when one does not make an active choice. In 2001 researchers found that when they changed the default option on employee’s retirement participation forms from non-participation to participation to at 3% participation in a money market fund there was in increase in retirement savings. People tend to choose the default when they are indifferent or they find the available options too much to think about. Also, people think that they have less to lose if they just choose the default rather than make a decision. Finally, if there are costs involved people tend to stick to the standard option (which is the default option) because selecting another option may trigger a cost.  I think many people can relate to this, how many times we have to fill out forms, whether they are financial or otherwise and we just stick to the standard option. This is especially true when there are big decisions and costs involved people are generally afraid to make a wrong choice so they stick with the default option.  As such, many institutions, including financial institutions have changed the once neutral default option to one that now elicits the appropriate choice they want the consumer to make.  This is an effective way to nudge consumers to make better choices.

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The other example of context change is the reframing of terminology.  As I referred to in a previous post, we hate losing more than we like winning.  It seems that when the same situation is presented to people with a different name, people react differently.  In 2006 researchers found that when a tax cut was represented as a bonus people were more likely to spend it rather than save it. When the same tax cut was presented as a rebate people were less inclined to spend.  This is because people perceived the rebate as a loss and the bonus as a gain. So how we label items can have an impact on how people behaviour.

wrong or right dilemma or ethical question - handwriting on colorful sticky notes

Ethical questions come into play because not all nudging may be to the consumer’s benefit. Especially, if the means, buying unnecessary extended warranties, or even benign as subscribing to mailing lists. How can you circumvent this? Be a conscious consumer.  When you are actively engaged in making your choices the chances of you being nudged in the wrong direction will be significantly reduced.  Even if you don’t understand everything on the form, or all the options, asking a question will be the first step to making a better decision. It will be a decision that suits your interest and not the interest of someone else.   When you become a conscious consumer you are taking charge once again. You shift the balance of power back to you.  When you take the extra time understand and apply new information about your options, you make a more informed choice that really serves your needs.


Can you remember when last you were “nudged”? Did you know that you were being nudged?  The next time you have to make a choice, be there. Be a conscious consumer and see if it makes a difference to the decision you make and see what kind of impact it has one you.

Dr. M

Published by Dr. M Finance Blog

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