How to Avoid Exploiting Behavioural Biases

With the Consumer Duty now in effect, financial services firms must ensure that they put the needs of their customers first. In addition, firms are expected to recognise the potential harms that behavioural biases can present for consumers. While these biases may be good for marketing and selling products and services, they can easily become exploited and can lead customers to make decisions that are likely to result in harm.

What methods are designed to exploit behavioural biases?

Manipulating people’s emotional biases into buying a product they do not need poses significant ethical questions. This can involve guilt-tripping or making a customer feel unintelligent for not choosing to purchase anything.

Customers may also feel pressured into buying a product or service if they are told it is only available for a limited time. This feeds into the ‘fear of missing out’ and can lead people to make impulsive decisions without any thought as to whether it meets their needs.

Hiding important information from customers is not only unethical, but it can also cause foreseeable harm, as it prevents customers from making informed decisions. Examples of hiding information include using small text, using complicated and confusing wording and placing key information at the end of a document.

How can firms avoid exploiting behavioural biases?

Behavioural biases need to be considered throughout the design process of a product or service. The structure and features of a product or service should be easy to understand and not obstruct customers from pursuing their financial objectives.

Communications, marketing materials, and financial promotions should be clear, fair, and not misleading. Customers should be provided with timely, relevant, and accurate information that allows them to assess the product or service and make an informed decision.

Firms should consider using a ‘layered approach’. This is when key information is provided upfront with links to further detail. Consumers are less likely to read information that is hidden, and important information should be coherent and not spread across several documents.

Staff involved in the distribution and sale of products should also be aware of the potential mistakes made by people when making financial decisions. They should be able to use their awareness of behavioural bias to help a customer make rational decisions that result in good outcomes.

Customers of course retain responsibility for their decisions and choices, but it is a firm’s duty to help customers make decisions that support their needs and financial objectives.

If you are interested in learning more, the Development Zone has a range of courses related to topics we have touched on in this article, including:

• Consumer Harm: Identification, Prevention, and the Consumer Duty
• Consumer Duty: The Consumer Principle Explained
• Inclusive Design

If you are new to the Aviva Development Zone, we offer a 14-day free trial where you can try every feature and every course! Click here to find out more: https://mydevelopment.zone/