Decision Process Based On Personal Finance Books: Is There Any Direction To Take?

Decision process based on personal finance books: is there any direction to take?
Marco Antonio Pereira Doutorando em Administrao de Empresas Faculdade de Economia, Administrao e Contabilidade da USP Av. Prof. Luciano Gualberto, 908 - FEA 3 CEP 05508-900 So Paulo SP Brasil e-mail: mantper@usp.br Tatiana Ladeira Vidal Mestranda em Administrao de Empresas Faculdade de Economia, Administrao e Contabilidade da USP Av. Prof. Luciano Gualberto, 908 - FEA 3 CEP 05508-900 So Paulo SP Brasil e-mail: tvidal@usp.br Thiago Navarro Amorim Mestrando em Administrao de Empresas Faculdade de Economia, Administrao e Contabilidade da USP Av. Prof. Luciano Gualberto, 908 - FEA 3 CEP 05508-900 So Paulo SP Brasil e-mail: thiago.navarro.amorim@gmail.com Luiz Paulo Lopes Fvero Professor Livre-Docente Faculdade de Economia, Administrao e Contabilidade da USP Av. Prof. Luciano Gualberto, 908 - FEA 3 CEP 05508-900 So Paulo SP Brasil e-mail: lpfavero@usp.br
Resumo O presente estudo visa, por meio de uma abordagem exploratria, identificar os principais vieses disseminados pelos livros de aconselhamento em finanas pessoais, muitos deles campees de vendas. De acordo com as teorias de anlise de deciso, esses vieses podem levar a distores acerca das alternativas timas a serem tomadas. Nessa pesquisa, os principais vieses disseminados pelos oito livros analisados foram aqueles relacionados a fatores motivacionais dos indivduos, como iluso de controle, egocentrismo, iluses positivas irreais, etc., ou seja, fatores que despertam mudanas individuais. Na maior parte das obras pesquisadas, esses vieses so apresentados por meio de frases de efeito calcadas nos relatos dos autores de casos de sucesso ou fracasso, no intuito de perseverar o comportamento adotado ou abominar determinadas aes com o uso de heursticas. O presente estudo, por meio da anlise de correspondncia, verifica que cada um dos livros privilegia uma corrente de pensamento e foca seus argumentos em poucos vieses de deciso, por vezes de forma antagnica ao modo como os demais best-sellers o fazem. Palavras-chave: Vis; Finanas pessoais; Deciso; Anlise de correspondncia.
Revista de Economia e Administrao, v.9, n.3, 407-425p, jul./set. 2010
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Marco Antonio Pereira, Tatiana Ladeira Vidal, Thiago Navarro Amorim e Luiz Paulo Lopes Fvero
Abstract The objective of this paper is, through exploratory analysis, to identify the main biases disseminated by personal finance counseling books, some of them bestsellers. According to decision analysis theories, these biases can lead to distortions as to the best choice. In this study, the main biases disseminated in the eight books analyzed were those related to motivational features such as control illusion, egocentricity, unrealistic positive illusions, etc., i.e. features that require individual changes. In most of the books, these biases are shown with the help of catch phrases and success or failure histories provided by their authors, with the intention of furthering the type of behavior adopted and abominating others with the use of heuristics. This study, with the help of correspondence analysis, verifies that each of the books focuses its arguments on a few decision biases, sometimes contradicting what the other bestsellers say. Keywords: Bias; Personal finance; Decision; Correspondence analysis.
1. Introduction
People are becoming increasingly interested in managing their own financial lives. Various causes can be identified, including a growing urban population, increased educational levels, higher disposable incomes, a greater number of financial instruments available to individual investors and, perhaps the most important, an awareness of governments limited ability to guarantee peoples individual futures through their social care plans. Financial decision-making at the individual level is known as personal finance. Personal finance teaching is widely available, involving both academics and finance experts, but also anyone offering a pedagogical do-it-yourself kit that acquires some level of popularity. Since it deals directly with people, endowed with emotions and distinct knowledge levels, the teaching of personal finance is loaded with motivational and simplifying expressions, aimed at molding individuals to replicate behaviors and desirable attitudes in new activities. Thus, many personal finance books are available in bookshops self-help sections. It is observed, however, that the authors of self-help personal finance books use common argumentation structures filled with biases. They often adopt known rules, but which are neither conceptually correct nor inserted in a logical decision structure. They can provoke more psychological wellbeing than concrete financial results. The problem with bias is that: 1) it can lead to non-optimal behaviors from a Finance viewpoint and, consequently, result in bad decisions; 2) it can lead to adequate behaviors when specific situations occur, with satisfactory results; and, especially 3) it does not prepare individuals to be able to structure their own decision processes.
2. Research problem
As an introduction, the importance of behavioral finance studies for modern finance theory was mentioned. The financial market, however, comprises not only big investors or experts, people who know finance theory and have access
Revista de Economia e Administrao, v.9, n.3, 407-425p, jul./set. 2010 408
to information. There are also many small investors who move the economy and seek solutions to invest their capital. These small investors are the target readers of self-help finance books, treated as counseling books in personal finance in this paper. Most of these books report on businessmens successful experiences and give advice to people who want to be financially successful. Analyzing these books approaches and the types of counseling they give to readers, the dissemination of biases was identified as resulting from heuristics that have been widely criticized in decision analysis theories. Modern finance theory assumes that individuals are fully rational in their decisions, and this has been descriptively criticized by behavioral finance studies. Financial counseling books, however, often in the top selling lists both in Brazil and abroad, go beyond this. They do not only describe the biases, but also present situations in which their use was successful and disseminate the full use of behaviors that run totally against prescriptive decision-making theory. The research problem in this study is to ascertain the main biases disseminated by financial counseling bestsellers in the main bookshops, in the light of Bazerman (2004), and to verify whether these books disseminate any structural or behavioral patterns, i.e. whether a counseling pattern can be found for a given decision type. This last question permits the identification of widely disseminated heuristics among investors who seek information as to the best way to decide on their investments and advance their financial health.
3. Review of literature
Like modern finance theory, prescriptive decision analysis theories assume that decision makers, whether individuals or groups, have all the necessary information and inherent ability to assimilate it and make the best decisions, weighing the criteria in order to reach previously established goals. Therefore, an infinite range of models and techniques can be used (CHEST and BODILY, 2000; FRIEND, 2001; KEENEY, 2004). This type of approach, however, does not take into account the subjective part of human beings, caused by their limited rationality (TVERSKY; KAHNEMAN, 1974). According to Thaler (2000) apud Bazerman (2004), three models justify human beings quasi-rationality. The first comprises the concept of limited rationality developed by Tversky and Kahneman (1974). The second is the existence of restricted willpower, attributing greater importance to present than to future problems, entailing some degree of inconsistency with long-term interests. The third concept demystifies the economic agents view, stating that the decision maker is actually concerned with external results. In the financial market context, information is available at an increasingly faster pace, coming from different sources, making the decision process increasingly complex (FROMLET, 2001). Thus, decision makers, whether managers or investors, are required to take positions faster and make more accurate forecasts. This context gives rise to heuristics, i.e. simplifications of
reality deriving from experiences. According to Tversky and Kahneman (1974), these can be defined as simplifying strategies or practical rules for decision making. Bazerman (2004) identifies three heuristics that are widely present in the decision-making process. These are the heuristics of judgment, which can be categorized into heuristics of availability, of representativeness and of anchorage and adjustment. The heuristics of availability appears when people assess the frequency, probability or probable causes of an event by the extent to which examples or occurrences of this event are immediately available in memory (TVERSKY and KAHNEMAN, 1973 apud BAZERMAN, 2004). Among the biases resulting from this heuristic, the easy reminder bias can be mentioned which, according to Tversky and Kahneman (1974), can be characterized when an individual accepts a situation as more probable due to the greater availability of examples. This type of bias is important, for example, when investors are afraid of putting resources into a stock market after verifying that several people incurred losses during the crisis in the United States. Other biases of the availability heuristic are recoverability and presupposed associations. The recoverability bias can be identified when people use information available in their memories to set their probability estimates. According to Chapman and Chapman (1967) apud Bazerman (2004), the bias of presupposed associations occurs when a considerable number of examples is available in which two situations happen jointly, leading individuals to judge the probability of joint occurrence as being higher than that of isolated facts. Another interesting heuristic is that of representativeness, when judgments are made in view of created stereotypes. This type of heuristic is found, for example, in new product launches, considering the success or failures of previous similar products. If taken to the extreme, this type of bias can reach the point of discriminatory judgments (BAZERMAN, 2004). This heuristic comprises biases of insensitivity to basic indices, insensitivity to sample size, mistaken interpretations of chance, regression to the mean and fallacy of conjunction. The main concept of bias of basic indices is not to consider the actual probability of events. In this study, the researchers expect to find plenty of evidence on this bias due to the personal finance books motivational nature and the neglect of business success statistics, for example. The study by Novemsky and Kronzon (1999) mentions previous studies that provide evidence on the bias of insensitivity to basic indices, tested in different ways and in different possible contexts, as in Fischhoff and Bar-Hillel (1984), Fischhoff, Slovic and Lichtenstein (1979), and Birnbaum and Mellers (1983). In that study, the authors propose a Bayesian decision model that considers the use of basic indices in problems related to law and engineering. The bias of insensitivity to sample size is closely related with the sampling techniques and Bernoullis law of large numbers (SEDLMEIER; GIGERENZER, 1997). Tversky and Kahneman (1974) say that sample size is rarely part of decision makers intuition since, by using the heuristic of representativeness, they give
up verifying whether the sample actually represents the event under analysis. The mistaken interpretation of chance bias, according to Bazerman (2004), encompasses the belief that earlier failures tend not to repeat themselves, entailing the expectation of future success. According to Tversky and Kahneman (1974), this bias tends to see chance as a self-corrective process, in which successive failures tend to turn into successes, tending towards a balance and eliminating random reality or regression to serially depending on facts. With regard to regression to the mean, this bias contains the proposition that future results can be forecasted based on past situations, and that extremely low or high results will not necessarily repeat themselves. Statistical analyses grant these forecasts a more professional nature, testing whether correlations naively established by decision makers intuition are corroborated. Costello (2009a) presents an essay on the fallacy of conjunction bias, explaining its existence based on probability theory. The author says that the fallacy of conjunction, i.e. the heuristic of considering events that happen jointly as more probable than the separate occurrence of these events, can be explained by basic probability theory and by the frequency of available joint events to the detriment of their isolated occurrence. The heuristic of anchorage and adjustment reveals the biases of insufficient adjustment of the anchor, conjunctive and disjunctive events and excess confidence (BAZERMAN, 2004). According to studies by Czaczkes and Ganzach (1996), relating certain preferences in the use of the representativeness, anchorage and adjustment heuristics, the use of anchorage and adjustment leads to the creation of insufficient adjustment of anchor biases, that is, numerical forecasting adjustments, for example, are insufficient thanks to the use of the anchorage heuristic and excessive thanks to the use of the representativeness bias. Slovic and Lichtenstein (1971) apud Bazerman (2004), Tversky and Kahneman (1974) provided evidence that adjustments made by individuals are not sufficient to counterbalance anchor effects. This bias indicates that people make estimates based on any initially provided information, even if random. The biases of conjunctive and disjunctive events are widely verified in Costello (2009b), based on probability theory. This study was mentioned above when the fallacy of conjunction was discussed. In Bazerman (2004), examples of optimism in budget and schedule preparation are presented and justified by the human capacity to overestimate conjunctive events and underestimate disjunctive events, that is, events happening independently. Budgets and schedules are prepared so as to expect the worst, that is, delays and greater spending than forecasted, overestimating the probability that unforeseen events will occur. Another extremely important bias that is clearly present in the decisionmaking process is excess confidence. According to Bazerman (2004), most of us put excessive trust in our estimation abilities and do not recognize true uncertainty. In line with research by Fischhoff, Slovic and Lichtenstein (1977), peoples level of confidence does not decrease with their level of knowledge on
the subject. In the same line, McGraw, Mellers and Ritov (2004) studied the impact of excess confidence on basketball players performance and ways to reduce this type of optimism, exemplifying that excess confidence can affect behavior and imply inconsistent decisions. Bazerman (2004) also discusses more general biases, such as the trap of confirmation, in which decision makers seek information to justify their previously made choices; retrospective forecasting biases, when decisions are made based on historical data, assuming that the future depends on the past; and the curse of knowledge, when it is considered that people have the same knowledge level on a given subject. The latter is intrinsically connected with the efficient in-class use of pedagogy, when teachers should heed this kind of bias to avoid the failure to present important contents because of the assumption that students were already familiar with them. Besides the abovementioned biases, others are more connected with the psychological nature of human beings, that is, motivational biases, widely researched on by psychology experts. These include: unrealistic positive views of oneself, unrealistic optimism, illusion of control, attributions of self-interest, positive illusions in a group or in society, egocentricity, regret avoidance. All of these do not derive from heuristics used, but from distortions in the way individuals interpret problems and how they deal with risk-filled situations of uncertainty. Dekay et al. (2009) studied the principle of precaution, closely related to probability distortion and regret avoidance, in which actions are taken in the ignorance of the probabilities that a certain event will occur, with a view to avoiding any type of disastrous consequence. This type of principle is widely used in situations of eminent environmental or health damage. OCreevy et al. (2003) presents important studies on the beneficial and at the same time harmful nature of positive illusions, mainly the illusion of control in negotiations. The authors cite studies by Wannon (1990) and Zuckerman et al. (1996), who present significant distinctions between the true and false benefits of control illusions. Rothbaum, Weisz and Snyder (1982) study control strategies, recognizing primary controls, in which the individual attempts to control the environment, which is unrealistic, and secondary control, when the individual psychologically adapts to the environment, representing true control. Taylor and Brown (1988) state that positive illusions are adaptive, encouraging increased motivation and persistence; in other words, their creation can be conditioned as, in their true form, they can offer significant benefits for individual behavior, more prevalent in mentally healthy (OCREEVY et al, 2003) than in depressed people. The authors also say that this type of positive illusions can also entail insensitivity to feedback, impeding learning, and make individuals more prone to assuming high-risk goals, as risk is underestimated. The biases of unrealistic positive illusions of oneself and unrealistic optimism are closely connected and can extend to the group as, while positive illusions of oneself make individuals believe they are better than others on an infinite range of desirable attributes (MESSICK; BLOOM; BOLDIZAR; SAMUELSON, 1985),
unrealistic optimism makes people believe that their future will be brighter than other peoples (BAZERMAN, 2004). In other words, people who believe they are more brilliant believe they deserve more promising futures. According to the author, the main difference between unrealistic positive illusions of oneself and egocentricity is that the latter refers to the interpretations of individuals exposed to the same information. The attributions of self-interest, closely connected with the bias of regret avoidance, consists in assuming an excessively large role in collective successes and minimal roles in collective failures, according to studies by Kramer (1994). In the next sections, the method is presented, along with the results, final considerations and suggestions for further research.
4. Method
The objective of this exploratory study is to survey relevant information for future quantitative or qualitative descriptive studies. According to Martins and Thephilo (2007), exploratory research is extremely important in an incipient field of study, providing information for the generation of hypotheses and the setting up of studies to test them. Although behavioral finance studies are widely discussed in the academic context, personal finance decision analysis still deserves further detail, as various decisions about personal resource allocations produce significant impacts in the financial market and the countrys economy. In this paper, the method involved the full reading of eight personal finance counseling books that figure on hotlists in this category. These readings were aimed at identifying phrases that could be considered as biases or biased decision-making heuristics. The corresponding sentences were then recorded and related to the biases outlined by Bazerman (2004), with a view to verifying eventual associations between the biases and the books under analysis, using correspondence analysis (Anacor). According to Whitlark and Smith (2001), correspondence analysis is a technique that measures the associations for a set of categorical variables on a perceptual map, thus permitting a visual examination of any pattern or structure present in the data. According to Batista, Escuder and Pereira (2004), it is a flat projection technique to represent graphically the multidimensional relationships of the 2 distances between the categories of variables. In this paper, symmetrical projection was used, which permits the simultaneous examination of relationships between the lines and columns of a contingency table, that is, the relationships between all categories of both variables. Closely located categories in the flat projection are more strongly related than categories separated by larger distances. Any category, represented as a point on the perceptual map, can be analyzed separately and characterized according to the proximity to all other categories projections on a straight line that connects its characteristic point with the origin of the projection level axes. When categories of one and the same variable
are close on the correspondence analysis map, this suggests that, independently of their semantic contents, they can be considered equal in terms of the distribution of masses of all observations made, according to Fvero, Belfiore, Silva and Chan (2009). This technique started with the French analyst Jean-Paul Benzcri in the early 1960s and represents an application of multivariate analysis to the display of lines and columns in a data matrix (GREENACRE, 1984). Many authors have made significant contributions to the application of multivariate models to qualitative data, particularly Haberman (1973), Young (1981), Ludovic, Morineau and Warwick (1984), Caroll, Green and Schaffer (1986), Hoffman and Franke (1986), Benzcri (1992), Nishisato (1993), Greenacre and Blasius (1994), Sharma (1995) and Carvalho (2004). Correspondence analysis is a multivariate technique that has become increasingly popular for dimension reduction and perceptual mapping. A perceptual map is the visual representation of an individuals perception of objects in two or more dimensions and, normally, this map contains opposed dimension levels at the extremes of the x and y axes. The method comprises two basic phases, related to the calculation of the association measure and the creation of the perceptual map. Anacor uses the 2 test to standardize the frequency values and constitute the basis for associations. Based on a contingency table, expected frequencies and 2 are calculated for each cell, considering the differences between observed and expected frequencies. Then, with the standardized association measures, Anacor creates a metrical distance measure and orthogonal projections on which the categories can be allocated, so as to represent the degree of association given by the 2 distances in a dimensional space. Initially, the 2 test is recommended for verifying whether two variables are dependent and, consequently, to assess the adequacy of applying Anacor. The maximum number of dimensions (axes in the graph) that can be estimated is one less than the minimum of the number of lines or columns. To give an example, in a contingency table with eight columns and eighteen lines, the maximum number of dimensions will be seven [min(line,column) - 1]. After the determination of dimensionality, the results can be examined in a graphical representation called perceptual map. This graph is analyzed by examining geometrical proximity relations and projections in dimensions that can be identified on the basis of flat points. Thus, the categories that best explain the dimensions are those that show greater inertia per dimension and are simultaneously at a greater distance from the origin. For the sake of a good result interpretation, according to Batista, Escuder and Pereira (2004), it should be kept in mind that the analysis level of this technique is essentially descriptive, with no cause-and-effect inferences and readily entailing risk interpretations. The c2 test and residual analysis gauge the distance between actual and expected observations due to simple randomness. Correspondence analysis offers contrasting information between relationships
of contingent variable categories, so that a stronger relation between two categories in comparison with other relations does not presuppose ones effect on the other. In this paper, eight personal finance counseling books were examined, with a view to checking for associations between the books and the main decision biases.
5. Analysis of results
The results based on the reading and analysis of the sample books are in line with initial expectations. Most of them contain motivational expressions that attempt to lead readers to a new view of the world, often changing roles, as from employee to employer for example, from debtor to creditor, from lessee to lessor, from no investment expertise to eminent financier, from poor to rich, etc. This change is encouraged by a first step: stimulate the individuals profound desire for change. Other steps should follow, but the main one is instruction. This will not necessarily come from formal education, but from any publicly available counseling and information, provided that it is particularly focused and regular in capturing this kind of data. The behavioral change can be conducted through short stories or cases of individuals in a wide range of situations, as well as through more complex figures in the form of gurus who transmit teachings to the author, who then transmits them to the reader. These histories may contain: 1) behaviors and desired attitudes, which supposedly result in financial success; often based on common sense, they explore the idea of following examples of successful people, consciously accepting investment opportunities, thinking positively, among others; 2) financial concepts, often transmitted as success formulae because they use deterministic forms, disdaining or marginally addressing the situation of uncertainty as to the achievement of positive financial results; 3) encouragement to change ones life, attempting not only to improve behavior, but mainly to cause profound changes in the readers environment and personal relations. This is identified in the stories that focus, for example, on new types of work and friendships that contribute to the search for a new life. Stories can take positive or negative forms, when examples are given of what should not be done. The frequent use of high-impact sentences is verified, and this may be considered a means for leading the reader to a new way of thinking and acting. Therefore, they contain communication directed at the goal the author intends to reach and may contain biases. While Bazerman (2004) and Clemen and Reilly (2001) address biases from the perspective of decision makers and which directly affect the decision process, in the present study biases potentially influence the process, as they play the role of additional information that can alter the options the decision maker considers valid. This entails understanding that alternatives can be eliminated as well as created, and that the perceived probabilities of success associated with each alternative may change.
In the sample of eight books, 751 biases were identified. Some examples are: 1) in the first book, sentences such as do not listen to poor or frightened people, most people do not understand the reason for their financial difficulties because they do not understand about cash flow; 2) in the second book, sentences such as if you are facing financial difficulties, its because your standard of living is too high, the first step to save is to have excess money; 3) in the third book, a loss of 100 is not that significant if you can gain 1,000, discipline is the best weapon for the volatility of your sense, making money on stocks is something fantastic!; 4) in the fourth book, you dont need a college degree to be financially independent, the rich pay less income tax because they do not make money as employees, if you had forgotten $10,000 in the so-and-so fund, youd have $2.4 million after 40 years; 5) in the fifth book, patient investors are very well rewarded, practically all billionaires got rich in their own businesses; 6) in the sixth book, some people are and will always be poor because being poor is part of their way of living, thinking and seeing things, the banks are not the villains in your financial problems, but your own lack of knowledge; 7) in the seventh book, so-and-so kept the bonds for so long that, over time, they were not worth anything anymore, if your main goal is to get rid of concerns, youll never give up being poor, a good job, as if that were mans highest ambition; 8) in the eighth book, you can choose to think and act like rich people and conquer similar results, things you have heard about money are not necessarily true. Different attempts are made, however, to minimize biases resulting from the adoption of emotional and directive language that, as mentioned above, attempts to change behaviors. After inserting a high-impact sentence with notably favorable results, another is included which casts uncertainty on these results. To give an example, an initial sentence would be: if you invest $283.13 every month at a rate of 1% per month, after 30 years youll have $1,000,000.00"; followed by the sentence: but you should not forget about the effects of inflation on the value of money. In other cases, the calculations can be demonstrated with an inflation rate of 0.5% per month, resulting in a real future value of $287,417.84. Considering interest rates and inflation as constant over such a long period, however, is a deterministic approach that simplifies reality and entails considerable risks. The following are the main biases identified, representing 75.1% of the entire sample, according to Bazermans (2004) terminology: illusion of control, regret avoidance, presupposed associations, excess confidence (includes irrational optimism, given that both concepts are close) and the trap of confirmation. This list of the main biases can be considered an argumentation process in which the presupposed associations and the illusion of control constitute the central elements of change, permeated by elements provoking excess confidence and elements that corroborate them through traps of confirmation. To turn the process rational, elements of regret avoidance are also used.
Table 1.- Bias distribution. Bias Trap of confirmation Excess confidence Presupposed associations Regret avoidance Illusion of control Others Total % 6% 9% 18% 21% 21% 25% 100%
To give an example, the following composition could be made: For you to become rich, you need to own your own business the bias of presupposed associations emerges when relating becoming rich with owning ones own business - and maintain a positive cash flow the bias of illusion of control over company finance - so you will be financially independent- bias of excess confidence - just like me bias of the trap of confirmation - but do not forget that business success depends on people you need to choose. bias of avoiding regret about making wrong choices of people who can negatively affect business results. Although the sentence is the authors opinion, which cannot be condemned, the readers may consider it as a piece of information in their decision process and restrict their options or maximize the utility of one to the detriment of the other. Another effect is the simplification of the decision process, by attesting particularly global or result variables and little or no elementary variables, such as saying, for example that you need to keep the business cash flow positive referring to a global or result variable. Some authors obviously detail personal sources of revenues and expenses in what they call financial planning, but are they not provoking an illusion of control? Table 2 below presents the contingency matrix for the association between the books and different biases, distributed according to Bazerman (2004). The book titles were replaced by letters for the sake of presentation. The restriction between book and decision bias, tested by 2, reveals that these variables are not independent (p = 0.000), that is, they are not randomly associated. Table 3 presents the adjusted standardized residuals, which permit characterizing the books according to the type of bias. Thus, for each of the books, the most frequently addressed biases are, in decreasing order of importance: Book A: Presupposed associations and Insensitivity to sample size; Book B: Unrealistic optimism and Avoidance of regret; Book C: Recoverability and Illusion of control; Book D: Attributions of self-interest, Excess confidence and Unrealistic positive views of oneself;
Table 2.- Contingency table between books and decision biases.1 BIAS BOOKTOTAL A B C D 3 7 31 12 0 23 14 0 25 0 11 0 1 3 2 0 0 4 E 0 0 3 0 0 7 0 2 0 0 F 3 15 38 8 1 36 9 0 35 0 G H 6 2 17 22 0 48 7 10 134 0 0 21 2 0 3 45 5 156 8 0 40 13 0 16 48 8 157 4 3 0 6 3 8 3 10 2 0 4
Fallacy of conjunction 0 0 3 Trap of confirmation 0 0 4 Presupposed associations 21 10 14 Attributions of self-interest 1 0 0 Egocentricity 0 0 0 Avoidance of regret 6 12 22 Excess confidence 3 1 5 Easy reminder 0 0 1 Illusion of control 6 7 28 Positive illusions in group and 0 0 0 in society Insensitivity to sample size 7 3 2 Insensitivity to basic indices 0 1 0 Mistaken interpretation of chance 0 0 5 Unrealistic optimism 1 4 5 Retrospective forecasting and the 0 0 0 curse of knowledge Recoverability 0 0 5 Regression to the mean 2 0 4 Unrealistic positive views of oneself 0 0 0 TOTAL : 382.5
0 5 1 0 0 17 2 9 0 1 0 0 0 6 0 0
3 34 3 5 1 30 2 29 8 18 1 16 0 16 1 7
47 38 98 136 16 182 190 44 751 DF: 119 p: 0.000
Book E: Easy reminder, Insensitivity to basic indices and Avoidance of regret; Book F: Mistaken interpretation of chance; Book G: Easy reminder, Regression to the mean, Positive illusions in group and in society, Trap of confirmation, Retrospective forecasting and the curse of knowledge, Illusion of control and Egocentricity; Book H: Retrospective forecasting and the curse of knowledge, Insensitivity to basic indices and Fallacy of conjunction.
Following suggestions by Pereira (1997) and Batista, Escuder and Pereira (2004) for the contingency table, first, the association between book and decision
1. The corresponding books are: A: Rich Dad Poor Dad; B: Smart Couples Together Enriching; C: Welcome to the Stock Exchange; D: Financial Independence: Rich Dads Guide; E: Investments: How to Better Manage Your Money; F: Money: the Secrets Who Have; G: The Zurich Axioms; and H: The secrets of the millionaire mind.
418
bias-related variables was assessed through the 2 test and, next, the association between pairs of these variable categories was examined through residual analysis, allowing for the study of the relationships between all categories of both variables in correspondence analysis.
Table 3.- Adjusted standardized residuals. BIAS A Fallacy of conjunction -1,08 Trap of confirmation -1,85 Presupposed associations 4,96 Attributions of self-interest -0,29 Egocentricity -0,45 Avoidance of regret -1,40 Excess confidence 0,33 Easy reminder -1,04 Illusion of control -1,42 Positive illusions in group -0,52 and in society Insensitivity to sample size 3,53 Insensitivity to basic indices -0,58 Mistaken interpretation -1,44 of chance Unrealistic optimism -0,64 Retrospective forecasting -1,11 and the curse of knowledge Recoverability -1,04 Regression to the mean 1,04 Unrealistic positive views -0,69 of oneself B -0,96 -1,65 1,40 -1,07 -0,40 1,69 -0,76 -0,93 -0,39 C 0,57 -1,00 -0,99 -1,80 -0,67 0,44 -0,11 -0,82 2,00 BOOK D -0,05 -0,66 1,67 4,71 -0,82 -1,23 2,85 -1,90 -0,80 E -0,62 -1,06 0,10 -0,69 -0,26 2,29 -0,96 2,90 -2,08 F -0,64 1,17 1,23 1,50 0,37 -0,38 -0,26 -2,29 -0,64 G 0,96 3,38 -5,90 -2,70 1,65 1,14 -0,79 5,20 1,71 H 1,05 -1,79 0,87 -1,16 -0,43 -1,59 -1,62 -1,01 -0,46
-0,46 -0,78 -0,94 -0,30 -1,13 3,45 -0,50 1,02 -1,27 2,21 -0,88 -1,33 -2,26 0,75 1,53 -0,87 -1,06 2,78 -1,27 -1,31 5,17 -1,29 0,60 -2,14 -0,82 4,23 -0,68 -0,60 2,19 0,68 -1,11 1,81 0,87 -1,89 0,24 -0,99 -1,66 -0,78 -0,63 -2,43 1,89 7,06 -0,93 2,18 -1,90 1,15 1,25 -0,61 0,07 -0,93 1,43 -1,90 -0,60 -2,29 3,46 -1,01 -0,61 -1,03 2,69 -0,39 -1,50 0,20 0,95
Correspondence analysis produced two dimensions for the flat projection of the variable categories. Through the application of symmetric normalization, which permits visualizing the relationship between the lines (decision biases) and columns (books) simultaneously, the perceptual map can be constructed. Through the perceptual map presented in Figure 1, some associations can be verified between the books analyzed and the biases examined. Thus, greater relative proximity between a decision bias category and a specific book indicates that, proportionally, this book recommends that specific category in a more indepth way to the detriment of the other categories.
Figure 1.- Perceptual map for the relationship between decision biases and personal finance books.
Key: - Books represented by Xs; - Biases represented by circles, in which: 1: Fallacy of conjunction; 2: Trap of confirmation; 3: Presupposed associations; 4: Attributions of self-interest; 5: Egocentricity; 6: Avoidance of regret; 7: Excess confidence; 8: Easy reminder; 9: Illusion of control; 10: Positive illusions in group and in society; 11: Insensitivity to sample size; 12: Insensitivity to basic indices; 13: Mistaken interpretation of chance; 14: Unrealistic optimism; 15: Retrospective forecasting and the curse of knowledge; 16: Recoverability; 17: Regression to the mean; 18: Unrealistic positive views of oneself.
Thus, it is verified that each of the books favors a current of thought and focuses its arguments on few decision biases, sometimes antagonistically to how the other bestsellers do it. Hence, if a private persons strategic investment decision is based on the set of available books, little or no direction will be provided to how he/she should act in the short, medium or long run.
Considering the personal finance books studied in this paper, the initial understanding was that one could identify a relationship between a book and a specific bias, as can be seen in Table 2, but these books can be characterized by some of the biases considered. Through ANACOR, one can identify what biases characterize the books, as can be seen in Table 3. The perceptual map allows one to understand the interdependence among the biases and the books (Figure 1). Through it, one can perceive how books and biases combine, and this map shows that most books are spread out horizontally, but with great vertical concentration. In other words, there is a strong relationship among almost all books with the vertical dimension (2), because these books have very similar concentrations in certain biases. On the other hand, a significant dispersion occurs in the horizontal dimension (1), due to the existence of other biases. In general, books focus on certain aspects of investment and explore financial independence, success, wealth, marriage or successful people. As their target audiences, these books focus on youth, women, couples or people in general. These books also bring different stories about successful cases, and use quantitative examples and a very deep financial language. These circumstances make them differentiated and make people create special interests. However, their argumentation emphasizes certain biases. For example, book A (Rich Dad Poor Dad) carries stories that stimulate distinct behaviors in comparison with those described in book B (Smart Couples Together Enriching), and so on.
6. Final considerations
According to this study, personal finance teaching through books concentrates on withdrawing the readers from their status quo, offering them a new view of their particular world. Therefore, argumentation structures are used that aim at a behavioral change to what the author considers more successful. Change is encouraged by using high-impact, especially motivational or psychological sentences that, if applied, are theoretically supposed to be able to provoke favorable financial results. The authors mitigate the lack of sound technical content with the recommendation of complementary instruction and the search for reliable technical advice. This attitude corroborates our understanding of these books main goal. These are counseling books that attempt to inspire people to take a direction that is considered to be superior. At bottom, however, readers will assess the effectiveness of this counseling in their own lives and follow it or not. Hence, readers do not become capable of fully structuring the decision process that will demand specific knowledge. The problem found in these books is the heuristics, or rules of thumb used for simplifying the decision process, but which result in a large number of biases. According to Bazerman (2004), these affect decision quality because, by accepting them, one gives up assessing their impact in the decision process.
In the researchers analysis, these biases can affect the decision process in two main ways: i) they alter the available options and the judgment of the probabilities of success; and ii) simplify the decision process. Both have negative implications. By altering the options, although new ones may be created, a direction is given towards the preference the author defends. And the process is simplified because the number and complexity of the variables involved is reduced. The biases also entail conceptual simplifications for finance. Conceptual nuances and theoretical complexity are left aside to use simple structures known to the public. Although this paper did not look at the consequences, one can briefly conjecture on the readers who, without finance knowledge, read these books and find themselves motivated to apply their strictures. If their motivation persists in the search for specialized knowledge, the chance of achieving their original objectives may increase. Some questions remain, which could be addressed in future studies: a) b) c) d) Do users of personal finance books make better decisions after reading them? Do users feel more qualified for the financial decision-making process? Can the biases have a general beneficial effect? Do users end up identifying and condemning the biases?
These inquiries are based on the understanding of consumers basic needs as users of books adopted as counseling manuals, and also of the effective results their use achieves. The dissemination potential of heuristics in the current information society cannot be neglected, nor its effect on the social and economic environment. While the researchers believe that the application of decision analysis techniques represents an important contribution towards the improvement of personal finance teaching, by calling attention to the need for the elimination of unwanted heuristics, they also understand that teaching becomes more dense and demanding. There is, in fact, a course to be drawn, which reconciles financial counseling, reader qualification and captivating arguments in books for a broad public.
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Decision Process Based On Personal Finance Books: Is There Any Direction To Take?

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Revista de Economia e Administrao, v.9, n.3, 407-425p, jul./set. 2010

Revista de Economia e Administrao, v.9, n.3, 407-425p, jul./set. 2010

Revista de Economia e Administrao, v.9, n.3, 407-425p, jul./set. 2010

Revista de Economia e Administrao, v.9, n.3, 407-425p, jul./set. 2010

Submetido em 06 de outubro de 2010 Aprovado em 22 de outubro de 2010

Revista de Economia e Administrao, v.9, n.3, 407-425p, jul./set. 2010

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