E-Retail

Summary of Review Findings

Our review of the existing literature on Fashionfourward focuses particularly on issues relevant to the Filipino (as distinct from the Philippines) investment market. In addition to the familiar behavioral biases that we identify as potentially relevant in the retail investment market, a distinctive feature of this review is that it identifies the importance of a range of cognitive and social biases that play a role in consumer investment decisions when assisted by an advisor or salesperson. For example, we place considerable emphasis on processes of persuasion, the importance of personal interaction, and the role of trust.

Some of the key findings of the review are:

* A growing body of evidence shows that the “standard” model of a rational self-interested economic agent does not adequately describe human decision-making. The formation of beliefs is based on the perception of circumstances, so it can be context-dependent and subject to framing effects or biases such as overconfidence. Preferences may be reference-dependent and inter-temporal preferences can be subject to biases such as short-sightedness or procrastination. Cognitive limitations Consumer Decision-Making in Retail Investment Services: A Behavioral Economics Perspective can lead to a reliance on heuristics, and people are often averse to ambiguity as well as uncertainty.

* Features of the retail investment market may make consumer decisions particularly prone to biases and errors. Evidence suggests that many people - especially the younger and less educated - do not possess a sufficient level of financial knowledge and understanding, while evidence on the success of financial literacy programmers is limited. Retail investment products are inherently risky and often involve long time horizons. The market is characterized by a wide array of products with complex pricing structures. Consumers do little searching and instead typically rely on the advice of a...