In recency, clients “overweight the relevance of information most recently seen,” according to Virtus.
In mimicry, clients uncritically mimic the decisions of others, like relatives or co-workers.
To help control financial behavior, advisors should focus on patient decision-making in the context of a plan. Tools like automation and implementing financial coaching can keep clients on the right path, said Portnoy.
“Relying on constant insights and emotional willpower is a lousy way to make an ongoing set of decisions,” said Portnoy. “If we can take all of our decisions about saving, investing and spending and automate them in accordance with sound principles, that’s a fantastic solution… just because something’s systematic doesn’t mean it won’t need to be implemented, monitored and evolved over time. If an advisor can take discretion away from human hands and put it in a more systematic program,” it potentially reduces the impacts of cognitive and behavioral bias.