Behavioral Finance - US - March 2006

TABLE OF CONTENTS

• Introduction and Abbreviations
• Introduction
• Other relevant reports
• Scope of the report
• Abbreviations and terms
• Abbreviations
• Terms
• Executive Summary
• Overall summary
• The basic concepts of behavioral finance and investments
• Behavioral finance and banking
• Behavioral finance and insurance
• Advertising and branding
• Implications for the industry
• Behavioral Finance and Investments
• Investor segmentation
• Impact of biases on investor behavior
• Certainty effect and risk aversion
• Loss aversion
  • Figure 1: Ameritrade print advertisement,December 2005
  • Figure 2: Schwab web page view, February2006
• Over-reaction
  • Figure 3: T. Rowe Price printadvertisement, January 2006
  • Figure 4: Fidelity Investmentsadvertisement, December 2005
• Cognitive dissonance
• Familiarity bias
• Anchoring
• Mental accounts
• Representativeness heuristic
• Overconfidence
  • Figure 5: Perceptions of investmentperformance, by gender, February 2006
  • Figure 6: Perceptions of investmentperformance, by age and income, February 2006
• Application of behavioral finance principles to retirement plans
• Setting deadlines
• Framing choices
• Limiting choices
  • Figure 7: Blue Cross Blue Shield NYMedicare Part D advertisement, December 2005
  • Figure 8: Wellcare Medicare Part Dadvertisement, December 2005
• Financial planning
• How financial services companies can help investors
• Benefits of professional advice
  • Figure 9: T. Rowe Price printadvertisement, December 2005
  • Figure 10: T. Rowe Price printadvertisement, November 2005
• Structuring products to appeal to mental compartmentalization
• Behavioral Finance and Banking
• Savings
• Income tax refunds
  • Figure 11: Tax refunds, by gender andincome, February 2006
  • Figure 12: Tax refunds, by age ofrespondent, February 2006
  • Figure 13: Use of tax refunds, by gender,February 2006
  • Figure 14: Use of tax refunds, by age,February 2006
  • Figure 15: Use of tax refunds, by income,February 2006
• Credit cards
• Savings and rewards cards
  • Figure 16: MasterCard acquisitionadvertisement, November 2005
  • Figure 17: Usage of credit cards andsavings accounts, by gender, February 2006
  • Figure 18: Usage of credit cards andsavings accounts, by age, February 2006
  • Figure 19: Usage of credit cards andsavings accounts, by income, February 2006
• Mortgages
• Single source financial providers
• Behavioral Finance and Insurance
• Probability estimation
• Mental accounting
• Other biases
• Default options
• Inflating insurance claims
• Annuities
• Shopping for insurance
• Auto insurance
  • Figure 20: Auto insurance shoppingfrequency, by gender, February 2006
  • Figure 21: Auto insurance shoppingfrequency, by age, February 2006
  • Figure 22: Auto insurance shoppingfrequency, by income, February 2006
  • Figure 23: Auto insurance shoppingfrequency, by gender, February 2006
• Life and auto insurance
  • Figure 24: Perceptions of shopping forlife and auto insurance, by age, February 2006
  • Figure 25: Perceptions of shopping forlife and auto insurance, by income, February 2006
  • Figure 26: Chubb print advertisement,November 2005
• Advertising and Branding
• Information overload
  • Figure 27: Frequency of application forcredit card(s), by gender, February 2006
  • Figure 28: Frequency of application forcredit card(s), by age, February 2006
  • Figure 29: Frequency of application forcredit card(s), by income, February 2006
• Strategies that consumers use to deal with information overload
• Familiarity
• Oversimplification
• Advertising and information overload
  • Figure 30: Schwab print advertisement,December 2005
• First impressions
• Anchoring
• Social conformity and consensus
• Persuasion
• Improving direct mail response rates
• Choice presentation
• Comparison to competitors
• Images shown
• Promotional giveaways
• Impact of advertising on consumer choice
• Advertising and emotions
  • Figure 31: Perceptions of financialsecurity, by income, January-September 2005
• Bibliography
• Appendix: Trade Associations