This just in: People do the opposite of what you tell them.
Researchers at the University of Indiana released the results of a study yesterday, which examined the effects of shame and guilt-inducing public service announcements. Specifically, the researchers studied ads which promoted responsible alcoholic consumption by way of illustrating the harmful consequences of over-drinking. By highlighting side effects like blackouts and car accidents, viewers of the ads were made to feel ashamed and guilty for indulging in those behaviors.
What’s the problem with that? Unwittingly, the ads caused people who are already dealing with those problems to drink even more.
Findings show such messages are too difficult to process among viewers already experiencing these emotions – for example, those who already have alcohol-related transgressions.
So not only do the ads not really work, they also exacerbate the situation for people who already have a problem.
Why do we care? Because this same kind of shame-inducing message could be leading retail investors to continue to do exactly what is hurting them in the first place. The human brain, when confronted with the horrors of reality, sets up a foiling mechanism to cope with the bright light of truth.
Advisor: You know, the research proves without a doubt that retail investors cannot time the market. You would be well-served by adopting a proven strategy and sitting tight for the long-term.
Client: Well that sure doesn’t sound like me! Hey this fund is down on the year, let’s find a new one. Next!
So not only does the client have a major problem to begin with, when you show them the error of their ways, it forces the client down a rabbit-hole of denial. It’s a vicious cycle.
We’ve talked about this type of behavior before.
Maybe we should try reverse psychology and suggest that clients churn their portfolio at every whim?
[Editor's note: J.P. does not have teenagers, or he would already know people do the opposite of what you tell them!]
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