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

Lidor Krava, Shahar Ayal and Guy Hochman

Chapter 3 in Behavioral Finance:The Coming of Age, 2019, pp 37-56 from World Scientific Publishing Co. Pte. Ltd.

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.

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 (search for similar items in EconPapers)
JEL-codes: G30 G41 (search for similar items in EconPapers)
Date: 2019
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