Con­sumer Be­hav­iour On­line: A Play­book Emerges

As con­sumer touch­points mi­grate on­line, it is in­creas­ingly im­por­tant to un­der­stand how hu­man na­ture man­i­fests it­self in a dig­i­tal en­vi­ron­ment.

Rotman Management Magazine - - ROTMAN MANAGEMENT - By Dilip So­man, Jes­sica An and Me­lanie Kim

As con­sumer touch­points in­creas­ingly mi­grate on­line, it is im­por­tant to un­der­stand how hu­man na­ture man­i­fests it­self in a dig­i­tal en­vi­ron­ment.

the term ‘con­sumer’ trig­gered imIN THE NOT-TOO-DIS­TANT PAST, ages of peo­ple in brick-and-mor­tar stores, touch­ing prod­ucts, phys­i­cally mak­ing com­par­isons and re­ceiv­ing face-to-face as­sis­tance. Back then, prod­uct and price com­par­isons en­tailed phys­i­cal trans­porta­tion costs, and the act of pur­chas­ing of­ten in­volved wait­ing in queues and us­ing pay­ment mech­a­nisms such as cheques or cash.

To state the ob­vi­ous, the shop­ping ex­pe­ri­ence has dra­mat­i­cally changed. Con­sumers ev­ery­where are em­brac­ing ecom­merce op­tions and ex­pand­ing the va­ri­ety of prod­ucts they pur­chase on­line. At the same time, the in-store shop­ping ex­pe­ri­ence now in­cludes el­e­ments of tech­nol­ogy — ei­ther of­fered by the re­tailer (in-store shop­ping kiosks or in­for­ma­tion dis­play screens) or by third par­ties (rec­om­men­da­tion apps or pro­duct­com­par­i­son tools).

To­day’s omni-chan­nel re­al­ity is ev­i­dent well be­yond the retail sec­tor. Banks, credit card com­pa­nies and in­surance providers are us­ing dig­i­tal chan­nels for var­i­ous pur­poses in­clud­ing sales, mar­ket­ing and cus­tomer re­la­tion­ship man­age­ment. At the same time, ‘pure play’ dig­i­tal com­pa­nies — those that rely solely on dig­i­tal chan­nels — are crop­ping up in the fi­nan­cial sec­tor.

In this ar­ti­cle we will at­tempt to an­swer some of the ques­tions that are vex­ing ser­vice providers in fi­nance and else­where: Why do con­sumers be­come par­a­lyzed in the face of abun­dant choice on­line? How does the con­sump­tion of on­line in­for­ma­tion dif­fer? And how and why do the choices of other peo­ple mat­ter in de­ci­sion mak­ing?

Be­havioural Pat­terns

In their book Nudge, No­bel Lau­re­ate Richard Thaler and Har­vard Pro­fes­sor Cass Sun­stein make a dis­tinc­tion be­tween two types of agents: ‘Econs’ and ‘Hu­mans’. Econs are the myth­i­cal be­ings that in­habit Eco­nomics text­books. Per­fectly ra­tio­nal in the eco­nomic sense, they can process in­fi­nite amounts of in­for­ma­tion, are for­ward look­ing, un­emo­tional, and al­ways act in their com­plete self-in­ter­est. Hu­mans, on the other hand, pro­cras­ti­nate, are cog­ni­tively lazy, freeze in the face of com­plex­ity and are highly in­flu­enced by con­text.

The prob­lem is that many of­fer­ings to­day are de­signed for econs rather than hu­mans. For in­stance, a pri­vacy pol­icy might pro­vide far more in­for­ma­tion than an im­pa­tient cus­tomer cares to read; or a re­tire­ment plan might of­fer too many funds and end

up con­fus­ing the con­sumer. This com­mon mis­un­der­stand­ing of­ten re­sults in pro­grams and poli­cies that do not pro­duce the de­sired be­havioural change.

Five con­cepts from Be­havioural Eco­nomics are par­tic­u­larly rel­e­vant to un­der­stand­ing on­line be­hav­iour.

Given the lim­ited ca­pac­ity of our cog­ni­tive BOUNDED RA­TIO­NAL­ITY. ap­pa­ra­tus, con­sumers are ‘bound­edly ra­tio­nal’. While stan­dard eco­nomic the­ory as­sumes peo­ple have an un­lim­ited ca­pac­ity to process in­for­ma­tion, the ev­ery­day be­hav­iour of hu­mans sug­gests other­wise. Con­sider a rel­a­tively com­plex fi­nan­cial de­ci­sion: Fig­ur­ing out how much you need to save for re­tire­ment. A ra­tio­nal ap­proach would re­quire fore­cast­ing of fu­ture in­come, ex­pen­di­tures, in­fla­tion rates and other un­knowns, and the cal­cu­la­tion of net present val­ues un­der sev­eral sce­nar­ios. The fact is, most con­sumers do not pos­sess the com­pu­ta­tional ap­pa­ra­tus to com­plete this anal­y­sis. In­stead, they take men­tal short­cuts to ap­prox­i­mate the nor­ma­tive ap­proach.

Given the re­al­ity of bounded ra­tio­nal­ity, it is not hard to see why the chal­lenge of in­for­ma­tion and choice over­load is mag­ni­fied on­line. Take on­line stock trad­ing, for ex­am­ple. By sim­ply en­ter­ing a key­word into a search en­gine, con­sumers have ac­cess to all kinds of in­for­ma­tion, in­clud­ing ag­gre­gate data on his­tor­i­cal per­for­mance and peer in­vestors’ opin­ions and choices. The sheer vol­ume of in­for­ma­tion to sort through and op­tions to choose from can be par­a­lyz­ing, and con­se­quently, con­sumers are likely to ig­nore the in­for­ma­tion, choose not to choose, or rely on de­ci­sion short­cuts.

As in­di­cated, hu­mans DE­CI­SIONS BY HEURISTICS AND SHORT­CUTS. are cog­ni­tive mi­sers who do not like to ex­pend much ef­fort on think­ing. More of­ten than not, we re­sort to sim­pli­fy­ing ‘heuristics’ when mak­ing com­plex de­ci­sions. For ex­am­ple, we stick with the de­fault op­tion pro­vided, look to the be­hav­iour of close peers, or rely on in­for­ma­tion that comes to mind read­ily. This search for an ‘easy way out’ holds even for im­por­tant de­ci­sions, like choos­ing a re­tire­ment sav­ings plan or a se­lect­ing an in­vest­ment prod­uct. Due to the num­ber of avail­able choices on­line, con­sumers are even more likely to rely on de­ci­sion short­cuts. In the ex­am­ple of on­line stock trad­ing, con­sumers may base their de­ci­sion on peers’ opin­ions, or, as one study showed, on how of­ten they have seen the stock in the news. Such short­cuts of­ten lead to er­ro­neous or bi­ased de­ci­sions.

A com­mon theme in Be­havPROCRASTINATION AND IM­PA­TIENCE. ioural Eco­nomics has to do with the man­ner in which hu­mans deal with de­ci­sions whose con­se­quences are spread out over time. The fi­nan­cial do­main is filled with such de­ci­sions, as most sav­ing, in­vest­ing and in­surance de­ci­sions have to be made at a point in time where the ben­e­fits will only oc­cur far into the fu­ture.

This stream of re­search can best be il­lus­trated by the seem­ingly in­con­sis­tent ideas of pro­cras­ti­na­tion (the ten­dency to de­lay tasks) and im­pul­siv­ity (the ten­dency to act im­me­di­ately). Peo­ple tend to pro­cras­ti­nate on tasks that yield long-term value but short­term pain. For in­stance, com­plet­ing ar­du­ous forms and meet­ing with a wealth man­ager to plan for re­tire­ment yields long-term ben­e­fits, but de­mands time and ef­fort in the present. Con­versely, peo­ple are of­ten im­pul­sive in do­mains where the prod­uct yields short-term ben­e­fits, but might not be good for the long term. For in­stance, spend­ing $5 on an in­dul­gence might yield im­me­di­ate plea­sure, but if done ha­bit­u­ally, will de­plete fu­ture sav­ings (and per­haps have an ad­verse ef­fect on one’s health). By mak­ing trans­ac­tion costs lower, it is likely that the on­line en­vi­ron­ment both re­duces pro­cras­ti­na­tion and mag­ni­fies im­pul­siv­ity.

Con­sumers are more hon­est when ad­mit­ting sen­si­tive in­for­ma­tion to a screen than to a hu­man be­ing.

A ba­sic tenet of Be­havioural EcoCONTEXT-DE­PEN­DENT CHOICE. nomics is that be­hav­iour and choice are con­text de­pen­dent. The way op­tions are pre­sented — how they are framed, the or­der in which they are pre­sented, and whether a de­fault ex­ists—in­flu­ences con­sumer pref­er­ences. For ex­am­ple, re­search shows that the ma­jor­ity of peo­ple pre­fer a sav­ings ac­count to a life annuity when the choice is framed as ‘an in­vest­ment de­ci­sion’, but this pat­tern re­verses when the choice is framed as ‘a fu­ture con­sump­tion de­ci­sion’. An­other study re­ports that peo­ple se­lect riskier port­fo­lios when stock-port­fo­lio data is pre­sented as ag­gre­gates, in­stead of as a list of in­di­vid­ual stocks. In an on­line en­vi­ron­ment, these sub­tle-but-pow­er­ful ‘con­tex­tual ef­fects’ can be ma­nip­u­lated much more eas­ily — for good or for bad. For ex­am­ple, on­line plat­forms can in­flu­ence de­ci­sion mak­ing by mod­i­fy­ing the set of choices that are pre­sented along­side the rec­om­mended al­ter­na­tive or by choos­ing which prod­uct at­tributes to make salient.

The ef­fects of other peo­ples’ choices on hu­man PEER IN­FLU­ENCE. de­ci­sion mak­ing have been shown in a num­ber of do­mains, rang­ing from tax com­pli­ance to herd be­hav­iour in fi­nan­cial mar­kets. As the con­nected world makes it even eas­ier for con­sumers to ob­serve the pref­er­ences of oth­ers in real time, the hu­man ten­dency to con­form to peer be­hav­iour is likely even more pro­nounced on­line.

Our Re­search

In our own re­search, we have iden­ti­fied three fac­tors that dif­fer­en­ti­ate the on­line de­ci­sion-mak­ing en­vi­ron­ment from the off­line en­vi­ron­ment.

1. The Screen Ef­fect

Screens — whether on an in-store kiosk or an In­ter­net-en­abled de­vice — al­low con­sumers to view in­for­ma­tion dif­fer­ently. For ex­am­ple, a con­sumer can com­pare sev­eral mu­tual funds along key at­tributes rather than hav­ing to flip through prospec­tuses one at a time — and this can change de­ci­sion mak­ing from an ‘al­ter­na­tive­based’ mode to an ‘at­tribute-based’ mode. Re­search by Rot­man Pro­fes­sors Avi Gold­farb and Brian Sil­ver­man shows that the im­per­sonal na­ture of on­line trans­ac­tions re­duces so­cial fric­tions in pur­chas­ing. In par­tic­u­lar, con­sumers are less shy about be­ing hon­est on a screen, and this lack of ‘so­cial over­sight’ can lead to in­dulging in ir­re­spon­si­ble and em­bar­rass­ing be­hav­iours.

The fol­low­ing three points elab­o­rate on the dif­fer­ent ways in which screens in­flu­ence the way con­sumers process and eval­u­ate fi­nan­cial in­for­ma­tion:

The way screens dis­play in­for­ma­tion is very IN­FOR­MA­TION DIS­PLAY. dif­fer­ent from the phys­i­cal world, and one key dif­fer­ence lies in the si­mul­tane­ity of in­for­ma­tion pre­sented on­line. In a retail store, an ap­peal­ing dis­play might catch a con­sumer’s eye, lead­ing her to ex­am­ine the prod­uct closely, find it to her lik­ing, and then look for fab­ric and pric­ing in­for­ma­tion. This se­quen­tial avail­abil­ity of in­for­ma­tion has the po­ten­tial to cre­ate not just im­pulse pur­chase sit­u­a­tions, but also quick ap­praisals that colour the in­ter­pre­ta­tion of the in­for­ma­tion that fol­lows. On the other hand, con­sumers shop­ping on­line are of­ten pre­sented in­for­ma­tion on the prod­uct and its price at the same time.

In the phys­i­cal world, fi­nan­cial de­ci­sion mak­ing of­ten in­volves in­for­ma­tion that is re­ceived se­quen­tially. For ex­am­ple, a con­sumer can se­lect mu­tual funds by flip­ping through op­tions one at a time, as­sess­ing each al­ter­na­tive holis­ti­cally and in iso­la­tion (us­ing an al­ter­na­tive-based mode of in­for­ma­tion pro­cess­ing). In the on­line world, con­sumers have the added abil­ity of mak­ing side-by-side com­par­isons. For in­stance, in­vest­ment com­par­i­son ta­bles (ac­ces­si­ble through sites like Morn­ingstar, Fi­delity In­vest­ments and Van­guard) rate se­lected funds on in­di­vid­ual at­tribute dimensions, like re­turns and risk cat­e­gory.

By see­ing at­tributes of dif­fer­ent in­vest­ment funds si­mul­ta­ne­ously on a screen, rather than hav­ing to wade through prospec­tuses, the con­sumer’s de­ci­sion-mak­ing process may change from an ‘al­ter­na­tive-based’ mode to an ‘at­tribute-based’ mode. In an at­tribute-based mode, op­tions are eval­u­ated di­rectly on how cer­tain at­tributes com­pare across al­ter­na­tives, and con­sumers are more prone to make sub­stan­tial com­par­isons and trade-off analy­ses among at­tributes of given al­ter­na­tives.

Fur­ther, re­search sug­gests that some at­tributes might be over-weighted in the de­ci­sion-mak­ing process in a side-by-side com­par­i­son com­pared to a ‘one op­tion at a time’ eval­u­a­tion. In par­tic­u­lar, at­tributes that are in­her­ently dif­fi­cult to eval­u­ate in iso­la­tion — such as the risk or volatil­ity of a stock — might play a sig­nif­i­cantly greater role in joint eval­u­a­tion than in sep­a­rate eval­u­a­tion.

When choices are com­plex, pick­ing the pop­u­lar op­tion is a com­mon de­ci­sion short­cut.

Decades of re­search shows that many judg­ments and VIS­UAL BIAS. be­hav­iours are rooted in au­to­matic, non-de­lib­er­a­tive pro­cess­ing. A large part of au­to­matic pro­cess­ing is vis­ual, and first im­pres­sions are usu­ally re­tained un­less there is strong mo­ti­va­tion to change them. Im­por­tantly, vis­ual im­pres­sions have been shown to in­flu­ence judg­ments of com­pletely un­re­lated qual­i­ties. For in­stance, the greater a web­site’s vis­ual ap­peal, the higher con­sumers rate its per­ceived us­abil­ity and trust­wor­thi­ness.

One ex­per­i­ment had par­tic­i­pants eval­u­ate the cred­i­bil­ity of two fi­nance web­sites. Re­sults showed that whereas fi­nance ex­perts fo­cused on in­for­ma­tion con­tent and source to as­sess cred­i­bil­ity, non-ex­pert con­sumers re­lied heav­ily on over­all vis­ual ap­peal. This in­di­cates that for non-ex­perts, su­per­fi­cial first im­pres­sions on screens of­ten dis­pro­por­tion­ately shape judg­ment in fi­nan­cial de­ci­sion mak­ing.

So­cial in­ter­ac­tions usu­ally in­volve a THE EF­FECTS OF ANONYMITY. de­gree of fric­tion, aris­ing from nor­mal feel­ings of anx­i­ety and self-con­scious­ness of be­ing judged. The on­line medium re­moves so­cial fric­tion by mak­ing con­sumers feel anony­mous, and the re­sult can be pos­i­tive or neg­a­tive. For ex­am­ple, con­sumers are more hon­est when ad­mit­ting sen­si­tive in­for­ma­tion to a screen than to a hu­man be­ing. Stud­ies show that when asked about their health on a screen, pa­tients tend to re­port more health-re­lated prob­lems and more drug use than when asked by a hu­man be­ing. In the con­text of fi­nan­cial de­ci­sion mak­ing, we can imag­ine a sce­nario where a con­sumer em­bar­rassed by his fi­nan­cial sit­u­a­tion may not re­veal all nec­es­sary in­for­ma­tion to a hu­man (lead­ing the fi­nan­cial ad­viser to rec­om­mend the wrong prod­uct), while he may be will­ing to re­veal much more to an im­per­sonal screen.

As in­di­cated ear­lier, the down­side of feel­ing anony­mous is that peo­ple be­come more likely to in­dulge in ir­re­spon­si­ble and un­in­hib­ited be­hav­iour. A study done by a pizza fran­chise showed that sales of un­usual, high-calo­rie or­ders in­creased when it in­tro­duced on­line or­der­ing: Con­sumers ordered dou­ble and triple por­tions of top­pings, and ba­con sales in­creased by a whop­ping 20 per cent. Sim­i­lar types of un­healthy be­hav­iour, like over­spend­ing or buy­ing high risk stocks, may also be­come more pro­nounced when there is low so­cial over­sight.

2. The Choice En­gine Ef­fect

When choos­ing be­tween op­tions on­line, con­sumers are of­ten un­able to eval­u­ate all al­ter­na­tives in great depth. For­tu­nately, tech­nol­ogy al­lows them to em­ploy choice en­gines that make de­ci­sion mak­ing eas­ier and more man­age­able. Fol­low­ing are two types of choice en­gines.

One group of choice enCUSTOMIZED REC­OM­MEN­DA­TION EN­GINES: gines called rec­om­men­da­tion agents (RAS) con­ducts ini­tial screen­ing of avail­able prod­ucts to cre­ate a per­son­al­ized con­sid­er­a­tion set. These RAS can rec­om­mend prod­ucts based on past be­hav­iour (as with itunes’ mu­sic sug­ges­tions based on your cur­rent playlists), oth­ers’ be­hav­iour (as with posts on Face­book’s news­feed based on what your friends re­cently ‘liked’) or con­sumers’ ex­plicit in­put of pref­er­ences. The re­sult is a ‘per­son­al­ized con­sid­er­a­tion set’ that en­ables con­sumers to zero-in on op­tions that are of in­ter­est to them. Rather than be­ing faced with over 100 pages of ran­dom op­tions on Ama­zon, the choice en­gine can sim­plify the de­ci­sion to choos­ing among a few op­tions that are of ac­tual in­ter­est.

Tech­nol­ogy-en­abled tools can also help con­sumers build and man­age cus­tom­ized port­fo­lios. Such on­line op­er­a­tions, called ‘robo-ad­vis­ers’, started ap­pear­ing in Canada’s on­line fi­nan­cial land­scape in 2014. Con­sumers an­swer ques­tions about their in­vest­ment goals, time hori­zon, and ap­petite for risk; and us­ing an al­go­rithm, robo-ad­vis­ers spread the con­sumer’s money into ap­pro­pri­ate in­vest­ments. These vir­tual ad­vis­ers are ac­ces­si­ble 24/7, and pro­vide au­to­matic ad­just­ments to en­sure the port­fo­lio blend stays in line with the in­vestor’s stated ideal mix as mar­ket sit­u­a­tions change.

Other choice en­gines al­low conPREFERENCE-FEED­BACK EN­GINES. sumers to so­licit feed­back on their pref­er­ences in real time. For ex­am­ple, in the mo­bile app Fit­tin­groom, con­sumers post photos of po­ten­tial pur­chases and other app users give feed­back us­ing ‘up votes’ and ‘down votes’. Con­sumers can then use the in­stant feed­back to in­form their pur­chase de­ci­sions. Look­ing ahead, we can imag­ine the cre­ation of a sim­i­lar plat­form to so­licit and re­ceive in­stant feed­back on fi­nan­cial and other de­ci­sions.

3. The Con­nec­tiv­ity Ef­fect

When con­nected to the In­ter­net, con­sumers have in­stant ac­cess to an enor­mous amount of in­for­ma­tion, in­clud­ing other peo­ple’s be­hav­iour. As in­di­cated, con­sumers look to the choices of peers to in­form their own be­hav­iour. For ex­am­ple, in­vestors find the mar­ket more at­trac­tive when more of their peers par­tic­i­pate, and they are more likely to choose to in­vest in a cer­tain stock when oth­ers have in­di­cated a de­sire to do so. In short, the con­nected world high­lights the hu­man ten­dency to con­form to peer be­hav­iour by mak­ing it much eas­ier for con­sumers to ob­serve oth­ers’ pref­er­ences in real time. Two types of ac­cess are of par­tic­u­lar in­ter­est here:

In this con­nected AC­CESS TO AG­GRE­GATE MAR­KET PREF­ER­ENCES. age, con­sumers have real-time ac­cess to ag­gre­gate mar­ket pref­er­ences. For ex­am­ple, Ama­zon and itunes pub­li­cize best-sell­ers on their site, and Kick­starter shows how much fund­ing each project has re­ceived. With ag­gre­gate mar­ket be­hav­iour dis­played promi­nently, con­sumers find it eas­ier to fol­low the crowd. As men­tioned ear­lier, es­pe­cially when choices are com­plex, pick­ing the pop­u­lar op­tion is a com­mon de­ci­sion short­cut.

Ac­cord­ing to the EdelACCESS TO OTHER IN­DI­VID­U­ALS’ PREF­ER­ENCES: man Trust Barom­e­ter, when it comes to cred­i­ble ad­vice, peo­ple rely on ‘a per­son like me’ just as much as they rely on ex­perts. The con­nected world al­lows con­sumers to eas­ily re­fer to peer be­hav­iour for ad­vice. For ex­am­ple, Tri­pad­vi­sor dis­plays the des­ti­na­tions that have been vis­ited and rec­om­mended by the user’s Face­book friends, and many so­cial me­dia plat­forms al­low con­sumers to see pur­chases made by their net­work.

The Way For­ward

The dig­i­tal rev­o­lu­tion is here to stay, which means busi­ness lead­ers and pol­i­cy­mak­ers alike need to em­brace the fol­low­ing prin­ci­ples of op­er­at­ing in this en­vi­ron­ment:

In­creased hon­esty;

1.

Greater abil­ity to make di­rect com­par­isons, re­sult­ing in

2. a lower de­gree of ap­praisal and a greater role of trade-off analy­ses among dis­played at­tributes;

Greater ac­cess to in­for­ma­tion about other peo­ples’ choic3. es, re­sult­ing in a greater like­li­hood of be­ing in­flu­enced by oth­ers;

Ac­cess to an abun­dance of al­ter­na­tives and an over­load of 4. in­for­ma­tion, re­sult­ing in a search for sim­pler de­ci­sion strate­gies; and

Avail­abil­ity of de­ci­sion-mak­ing tools and choice en­gines 5. that re­duce the ef­fects of cog­ni­tive bur­den.

One par­tic­u­lar man­i­fes­ta­tion of these el­e­ments takes the form of a de­ci­sion-mak­ing strat­egy that we call ‘avatar-based de­ci­sion mak­ing’. The tra­di­tional ap­proach to de­ci­sion mak­ing can best be ‘al­go­rith­mized’ as fol­lows:

a) For each al­ter­na­tive, iden­tify all rel­e­vant at­tributes; b) De­ter­mine the rel­a­tive im­por­tance of each; c) Score each al­ter­na­tive on each at­tribute; d)scale the im­por­tance and the score, and com­pute the cumu

la­tive weighted score; and e) Choose the al­ter­na­tive with the high­est score.

Other mod­els of de­ci­sion mak­ing — such as men­tal ac­count­ing and val­u­a­tion — use a slightly dif­fer­ent al­go­rithm, yet they all share the cen­tral idea that choice is driven by the in­her­ent net value of the al­ter­na­tive. In con­trast to this view, we found sup­port for an avatar-based ap­proach char­ac­ter­ized by the fol­low­ing al­go­rithm:

a) Iden­tify an ‘avatar’ — a role model, a sim­i­lar other, or an as

pi­ra­tional fig­ure that the con­sumer looks up to; b) Re­trieve their choices; and c) Use those choices as an an­chor and ad­just for per­sonal cir

cum­stance.

Con­sider a bank that sets up a web page to help con­sumers nav­i­gate the com­plex world of fi­nan­cial prod­ucts. That web page might have a num­ber of sec­tions, each for a dif­fer­ent class of prod­ucts, and each page might fo­cus on pro­vid­ing the con­sumer with in­for­ma­tion and de­ci­sion tools.

A fi­nan­cial in­sti­tu­tion that em­braces the avatar-based ap­proach would set up its web page dif­fer­ently. In one sce­nario, it might present a hy­po­thet­i­cal con­sumer, Justin, as part of a lim­ited num­ber of car­i­ca­tures that rep­re­sent dif­fer­ent pro­files — avatars at dif­fer­ent stages in life, ca­reer, fam­ily, goals and net value. Justin could choose the avatar that he thinks best rep­re­sents him, and use its choices as the ba­sis for his own. In a sec­ond sce­nario, an­other hy­po­thet­i­cal con­sumer, Hil­lary, might be asked a few lifestyle, ca­reer and fam­ily ques­tions, and an al­go­rithm would gen­er­ate a ‘clos­est-match’ avatar.

Our re­search sug­gests that an avatar-based ap­proach is more likely than other ap­proaches to re­sult in a ro­bust and mean­ing­ful con­ver­sa­tion with fi­nan­cial ad­vis­ers. Like­wise, a reg­u­la­tor who be­lieves in the avatar-based ap­proach will rec­og­nize that while con­sumer Stephen — who fol­lows a tra­di­tional al­ter­na­tive-based ap­proach to choos­ing off­line — will be in­flu­enced by stan­dard prod­uct risk-re­lated dis­clo­sures, con­sumer Kath­leen — who re­lies on an avatar-based ap­proach — will not. In­deed, for con­sumers like Kath­leen, dis­clo­sures might be best em­bed­ded in the de­scrip­tion of the rel­e­vant avatar.

In clos­ing

By bet­ter un­der­stand­ing con­sumer de­ci­sion mak­ing on­line, busi­nesses can help con­sumers make bet­ter choices by pro­vid­ing ap­pro­pri­ate de­ci­sion sup­port tools, and pol­i­cy­mak­ers can de­sign be­haviourally-in­formed reg­u­la­tions. As in­di­cated herein, de­ci­sion mak­ing on­line is not merely the dig­i­ti­za­tion of de­ci­sion mak­ing in a bricks-and-mor­tar world. It is a play­ing field with com­pletely dif­fer­ent rules. Dilip So­man is the Corus Chair in Com­mu­ni­ca­tion Strat­egy and Pro­fes­sor of Mar­ket­ing at the Rot­man School of Man­age­ment and co-di­rec­tor of Be­havioural Eco­nomics in Ac­tion at Rot­man (BEAR), a re­search cen­tre that com­bines re­search in de­ci­sion-mak­ing with em­pir­i­cal­lytested tools to fa­cil­i­tate be­havioural change. Me­lanie Kim is a Re­search As­so­ci­ate at BEAR. Jes­sica An is a Risk An­a­lyst at TD Bank Group’s TD Auto Fi­nance and a for­mer Project Lead at BEAR. The full re­port on which this ar­ti­cle is based (“Fi­nan­cial Be­hav­iour On­line: It’s Dif­fer­ent!) can be down­loaded on­line.

FIG­URE ONE

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