One of the biggest leading indicators of people’s tendency to be swayed by bad investment advice is in their susceptibility to put their faith in pseudo-profound financial jargon. A new academic study seeks to actively measure consumers’ ability to detect “financial bullshit”. Its findings are startling.
Take a close look at the following statement: “Your money transforms universal actions”. It sounds good, doesn’t it? Perhaps it’s part of a pitch to put your hard-earned cash into a sustainable investment product, one that changes universal corporate behaviour.
In actual fact, that statement appears high up in “a financial bullshit” scale, part of an academic study to discern individual differences in people’s susceptibility to seemingly impressive financial assertions that are in fact made-up, meaningless babble.
Individual Differences in Susceptibility to Financial Bullshit is a fascinating paper that appears in a recent edition of The Journal of Behavioural and Experimental Finance. It was produced by three academics based at the University of Linköping in Sweden — Mario Kienzler, Daniel Västfjäll and Gustav Tinghög. The authors find that consumers particularly vulnerable to this sort of gobbledygook are more likely to be young, male, have a high income and be overconfident about their financial knowledge.
“Finance is often portrayed as a complex and difficult area of decision-making, where interactions commonly are characterised by jargon, acronyms, and slogans,” the paper says. “This provides a hotbed for bullshitting to thrive and obscure the view of consumers.”
A long history
The idea of “bullshit” as a device to part unsuspecting people from their money has been the subject of academic studies before, most notably in 2005 by Princeton Professor of Philosophy Harry Frankfurt, who wrote a seminal work simply called On Bullshit.
“The essence of bullshit is not that it is false but that it is phoney,” Frankfurt wrote. It is not quite lying so much as a result of someone talking about something without knowing really what he is talking about. Anyone who has been around finance long enough will tell you these characters are everywhere.
The new Swedish paper takes Frankfurt’s dissertation and applies it purely to the financial domain, where products are frequently marketed using opaque and technical-sounding language to people for whom these solutions may not be appropriate.
Where are you on the scale?
The ‘financial bullshit scale’ in the experiment included lists of both profound and pseudo-profound financial statements. The profound statements include established pieces of wisdom like “a fool and his money are soon parted”. The pseudo-profound statements were simply made up using tools like the website www.makebullshit.com.
Some of the pseudo pieces of wisdom included “a cheap loan is beyond all new destiny” or “money eases the costs of those who borrow”. They sound superficially profound until you think about them for more than a moment.
The next stage of the experiment was to try them out on an online survey of more than one thousand adults. Each participant was asked questions about their financial wellbeing, financial knowledge, well-being and behaviour, and each was sorted according to their age, gender, religiosity, income and education.
The survey tested participants knowledge by giving them a range of statements containing financial buzzwords. Some of those statements were true (for example: “When you buy a bond, you are lending a company money”). Others were completely made up (for example: “Hedging means investing your money in a single stock”).
Findings defy presumptions
Interestingly and at odds with the stereotypes about gender, the authors found the people best able to detect financial bullshit were older women with lower incomes who were not overconfident in their financial expertise. Also notable was that levels of education appeared to make no difference in the BS-detection scale.
In contrast, the biggest dupes for financial nonsense tended to be young, over-confident, high-income males — similar to the demonstrated tendency for young men to be more likely to drive recklessly and under the influence of alcohol.
“It seems reasonable to believe that as incomes rise consumers become less vigilant when it comes to financial matters and therefore less alert when it comes to detecting to be affected by impressive financial language,” the authors conclude.
Also notable was that people with a higher ability for detecting nonsense actually felt more insecure about their finances, while the more gullible people were to financial BS the better off they thought they were — a finding the authors attribute to the “ignorance-is-bliss” effect.
The authors suggest the findings in this landmark study could have major implications for how financial intermediaries communicate to different groups in helping them make better decisions about their finances and feel more secure in money matters.
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