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Time is Money: The Advantages of Quick and Intuitive Financial Decision-Making

In: Behavioral Finance The Coming of Age

Author

Listed:
  • Lidor Krava
  • Shahar Ayal
  • Guy Hochman

Abstract

Dual process models of reasoning and thinking styles suggest that deliberative decision processes and profound evaluation lead people to better financial decisions. However, recent developments in decision-making research indicate that under certain conditions, a more automatic evaluation can lead to better decisions whereas further deliberative and thorough evaluation may lead to biased decisions. Here, we examined the nature of basic financial decision-making based on an intuitive, more automatic evaluation and characterize their advantages and disadvantages compared to a deliberative deep examination. By manipulating response time on an online questionnaire, participants were forced to make inferences and financial decisions under an intuitive or a deliberative mode of thought. Unexpectedly, the results show that in specific situations financial decisions were better under an intuitive mode of thought than a more analytical and deliberative style.

Suggested Citation

  • Lidor Krava & Shahar Ayal & Guy Hochman, 2019. "Time is Money: The Advantages of Quick and Intuitive Financial Decision-Making," World Scientific Book Chapters, in: Behavioral Finance The Coming of Age, chapter 3, pages 37-56, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813279469_0003
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    Cited by:

    1. Balasubramnian, Bhanu & Sargent, Carol Springer, 2020. "Impact of inflated perceptions of financial literacy on financial decision making," Journal of Economic Psychology, Elsevier, vol. 80(C).

    More about this item

    Keywords

    Behavioral Economics; Behavioral Finance; Behavioral Macro-Finance; Decision Making; Disposition Effect; Financial Crisis; Financial Decision-Making; Financial Market Anomalies; Fintech; Gender Differences; Heuristics; Information Processing Style; International Contagion Market Design; Monetary Policy; Mood; Optimal Portfolio; Overreaction; Peer-to-Peer Lending; Political Economics; Time Pressure; Transparency;
    All these keywords.

    JEL classification:

    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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