Behavioral Economics: Overcoming Natural Human Tendencies

Behavioral Economics is the fusion of psychology and economics to explain human behavior as it relates to decision-making. The concept of behavioral economics had never been studied specifically in the insurance and financial services space. HPN and LIMRA identified 7 Behavioral Economics Techniques that, when applied to the sales process, increases the likelihood of a prospect or client moving forward by 29%!

The key is to help people overcome their natural human tendencies. Economics is RATIONAL but behavioral economics is very IRRATIONAL. Here is a list of some of these tendencies and techniques:

• Herding – relate personal experiences and reference what others have done in a similar situation; use heuristics or financial rules of thumb.
• Irrational Optimism – use personal experiences to share how others have benefited or avoided a negative impact.
• Loss Aversion – demonstrate present value to help people think about how they can fit your solution in their budget.
• Mental Accounting – help classify the expense and demonstrate how a solution can satisfy more than just one financial need.
• Inertia – avoid ambiguity and explain concepts in easy-to-understand terms; provide guidelines to help people make complex decisions; use visualization to help someone “test drive” the emotions of the financial decision.

Bottom Line – Behavioral economics invokes more feelings and leaves a better impression; the immediate context of decision-making makes a difference, and simple differences in how decisions are presented can influence the choices people make.