Última atualização a 8/7/2021
CO2 GROUP
Fighting Overindebtedness: Selfregulation and consumer environment
The project Fighting Overindebtedness: Selfregulation and consumer environment (PTDC/MHCPAP/1556/2014), financed by national funds of FCT.
ABSTRACT
Since the bailout loan in 2010, the Portuguese society has been besieged by severe austerity due to socalled punitive interest rates often justified as the consequence of years of collective overspending. We posit that the cumulative effect of such an intimidating social environment is that more and more people are mentally preoccupied with making ends meet, which triggers increased needs of selfregulation and snowballing adverse effects on subsequent selfcontrol capacity (Mani, Mullainathan, Shafir, & Zhao, 2013). In other words, even middleclass consumers with stable budgets (and not only overindebted ones) are likely to suffer from selfcontrol depletion because of constant preoccupations with a risky financial context of increased scarcity. This promotes cognitive myopia (Fiedler & Wanke, 2009), makes consumers more prone to rely on heuristics and encourages herding (i.e., imitating group behavior rather then deciding independently on the basis of private information) as a response to an unstable financial environment (Baddeley, 2010). Sophisticated mass providers are often found to strategically exploit such behavioral tendencies to their own advantage (e.g., Vigna & Malmendier, 2004). In addition to purely scientific reasons, the test of the above prediction concerning the costs of longterm exposure to an environment of severe austerity is clearly justified by the dramatic increase in the financial vulnerability of the Portuguese families. By the end of 2014, in a population of about 10 millions, 4.4 millions were indebted of whom 2.5 millions were overindebted (i.e., with a strain rate of more than 35% of total income) and 700.000 had entered in default (Boletim do Banco de Portugal, 2014). Given such apprehensive scenario, the second goal of this project is to put consumers back in control of their financial decisions. We propose new evidencebased strategies able to empower consumers and to foster more transparent financial decision contexts that will ultimately help prevent the psychological effects of being overindebted (or being part of an overindebted society). Based on insights from our recent research we propose two intertwined routes to consumer empowerment:
Counteracting the asymmetry between consumers and mass providers
The financial market environment of mass providers is one of repeatplay given the high number of market interactions with consumers. In contrast, from the point of view of individual consumers, the interaction with a particular mass provider is often a oneshot deal (e.g., credit housing). Such asymmetry in bargaining experience allows the repeatplayer to manipulate consumer errors to their systematic advantage. To counter it, we use results from prior research on how judgment unfolds under different decision contexts (Ferreira, GarciaMarques, Sherman, & Sherman, 2006) to devise training strategies that provide individual consumers with the advantage of the repeat-player knowledge (e.g., repeatplaying with appropriate feedback for future or simulated transactions).
Counteracting cognitive myopia
One reason why innumeracy (one of the main causes behind poor financial decisions) prevails among consumers is the accompanying feeling that they understand mathematical concepts and methods with far greater depth than they really do. Due to such illusion of explanatory depth (Rozenblit & Keil, 2002), impoverished or faulty cognitive representations of financial data tend to be taken at face value. In these cases even suitable decision processes may lead consumers astray since at most they provide the correct answer to the wrong problems. We aim to use change detection paradigms (e.g., Mata, Schubert, & Ferreira, 2014) to identify consumers’ specific misconceptions when facing credit information and develop empowerment strategies (inspired by our recent research on motivated reasoning; Mata, Ferreira, & Sherman, 2013b) able to spark consumers’ awareness of specific biases in their representations and use of financial data.
Transfer of knowledge The Portuguese Association for the Consumer Defense (DECO) will provide us access to households (including overindebted consumers) for this project research proposes. To accomplish the transfer of knowledge from experimental research to real world settings we further count on the knowhow of expert stakeholders (economists, lawyers, psychologists) from DECO’s debt advisory services. These professionals have a vast experience in advising consumers in financial difficulties. Their initial feedback (through meetings we have held) was already an important contribution for the development of this proposal. One of DECO’s experts is also a member of the research team, which will facilitate procedures underlying the implementation of the studies (to be conducted with consumers that contact DECO services) and development of guidelines.
MAIN GOALS
To develop evidence-based strategies able to empower Portuguese consumers and to foster more transparent financial decision, as well as decision contexts that will help prevent the psychological effects of being overindebted or being part of an overindebted society.
To accomplish these goals, our research aimed at:
a) A deeper understanding of the multifaceted concept of overindebetedness, its risk factors, and socio-psychological consequences;
b) Counteracting cognitive myopia and consumers decision-making errors;
c) Transferring knowledge from research to real world settings by creating two software Apps:
One software App on consumer decision biases and ways to avoid them, was also produced and made available to the general public. This App entitled “Decisões Financeiras” and its English version “Financial Decisions” is based on prior research on consumer decision behavior and it provides simplified information on characteristic judgment and decision errors and biases (e.g., unrealistic optimism, anchoring effects, narrow thinking) on four different consumer domains: credit card use, preparing for retirement, budget management, and buying a house. It also provides exercises with feedback (before and after the information about each type of the described biases) that allow consumers to learn about these errors and biases and how to avoid them in a safe, repeat-play environment.
Open App “Financial Decisions” / “Decisões Financeiras“
RESEARCH TEAM
Principal Investigator
Mário B. Ferreira
CICPSI / FP-ULisboa
Research Team
André Mata
CICPSI / FP-ULisboa
Michaela Wänke
Universität Mannheim
Diego Costa Pinto
NOVA IMS
Kathleen Vohs
Carlson School of Management
Marcia Herter
Universidade Europeia
Florian Kutzner
University of Mannheim
FUNDING AND PARTNERS
MAIN OUTPUTS
Almeida, F., Ferreira, M. B., Soro, J. C., & Silva, C. S. (2021) Attitudes Toward Money and Control Strategies of Financial Behavior: A Comparison Between Overindebted and Non-overindebted Consumers. Frontiers Psychology. doi: 10.3389/fpsyg.2021.566594
de Almeida, F., Scott, I. J., Soro, J. C., Ferreira, M. B., Catarino, M. L., Amaral, A. R., Fernandes, D., & Arêde, A. (Submitted) – Financial scarcity and cognitive performance- a meta-analysis. Personality and Social Psychology Bulletin. (PSPB-20-424)
Ferreira, M. B., Almeida, F., Soro, J. C., Costa Pinto, D.; Herter, M. & Silva, C. S. (2021). On the Relation Between Over-Indebtedness and Well-Being: An Analysis of the Mechanisms Infuencing Health, Sleep, Life Satisfaction, and Emotional Well-Being. Frontiers Psychology doi: 10.3389/fpsyg.2021.591875
Soro, J. C., Ferreira, M. B., Almeida, F., Silva, C. S., Reis, J. (2021). Perceived Causes and Attitudes Regarding Overindebtedness and Their Effects on Public Agreement With Government Financial Aid. Frontiers Psychology.doi: 10.3389/fpsyg.2021.591765
Soro, J. C., Ferreira, M. B., de Almeida, F., & Garcia-Marques, L. (Submitted) – Anchors weigh in credit card repayment decisions- replacing fixed values by percentages in disclosure of payment options. Journal of Behavioral Decision Making. (BDM-20-0253)
Mendonça, C., Mata, A., Ferreira, M. B. (Submitted) – Social Amplification of the Ratio Bias. Quarterly Journal of Experimental Psychology. (QJE-STD-19-190.R1)
Ferreira, M. B.; Costa Pinto, D.; Herter, M.; Vanneschi, L.; Castelli, M. Using artificial intelligence to overcome over-indebtedness and fight poverty (2020). Journal of Business Research (published online) https://doi.org/10.1016/j.jbusres.2020.10.035
Soro, J. C., Ferreira, M. B., Gouveia, K., & Reis J. (2019). Emotion Reactions to Economic Predictions and its Effects on reasoning and Logical Thinking. In C. Pracana, & M. Wang (Eds.), Psychology Applications & Developments (Vol. 5, pp. 111-124). Lisbon, Portugal: InSciencePress.
Pinto, D. C., Ferreira, M. B., Herter, M. M., Vanneschi, L., Castelli, M. (September, 2019). Can Data Science Help My Bank Account? Data Science and Over-Indebtedness. DSPA Insights 2019, Lisboa, Portugal.
Soro, J. C., Ferreira, M. B., Gouveia, K., Reis, J., & Nunes, C. (June, 2019) Impacto das emoções no pensamento lógico dos consumidores. X Simpósio Nacional de Investigação em Psicologia, Funchal, Portugal.
Pinto, D. C., Herter, M. M., Vanneschi, L., Castelli, M., & Ferreira, M. B. (June, 2019). Pode a Inteligência Artificial ajudar-me nas contas? Uso de algoritmos de IA para predizer o sobre-endividamento. X Simpósio Nacional de Investigação em Psicologia, Funchal, Portugal.
Herter, M. M. Ferreira, M. B., Nunes, C., Reis, J., Soro, J. C., Pinto, D. C. (June, 2019). O que distingue os consumidores sobre-endividados dos não sobre-endividados? X Simpósio Nacional de Investigação em Psicologia, Funchal, Portugal.
Soro, J. C., Ferreira, M. B., Gouveia, K., Reis, J. & Nunes C. (June, 2019). Logical reasoning of consumers and the impact of emotions evoked by different forecasts of economic development. 29th Annual meeting of the CSBBCS. Waterloo Ontario, Canada.
Ferreira, M. B., Soro, J. C., & Nunes, C. (May, 2019) Anchoring effects in credit card payments. 14.º Encontro Nacional da APPE, Évora, Portugal.
Soro, J. C., Ferreira, M. B., Gouveia, K., Reis, J. (May, 2019) Emotion reactions to economic predictions and its effects on reasoning and logical thinking. International Psychological Applications Conference and Trends (InPACT), Zagreb, Croatia.
Ferreira, M. B., Soro, J. C., & Nunes, C. (June, 2019) Modelo dualista de tomada de decisão do consumidor. X Simpósio Nacional de Investigação em Psicologia, Funchal, Portugal.
Soro, J. C., Ferreira, M. B. & Nunes C. (June, 2019). Debt repayment and anchoring effects: Disclosure of payment options to increase credit card monthly repayment. 29th Annual meeting of the CSBBCS. Waterloo Ontario, Canada, June.
Ferreira, M. B. & Pinto, D. C. (July, 2019). Avanços em Ciências Cognitivas e Inteligência Artificial e o seu impacto na Sociedade. Conferência Internacional sobre o Futuro do Trabalho. Núcleo de estudo Luso-Brasileiros, Faculdade de Direito, Lisboa
Soro, J. C., Ferreira, M. B. & Nunes C. (September, 2019). Debt repayment, default options and anchoring: Disclosure of payment alternatives to increase credit card monthly repayment. ESCON Transfer of Knowledge Conference, Bordeaux, France.
Profiling and Predicting Over-Indebtedness
Online seminar series on good practices in debt advice (European Commission, Center for European Policy Studies)
Mário B. Ferreira (January, 2021)
Abstract
Over-indebtedness speaks in different voices as indicated by the surfacing of different profiles involving different risk factors. There is no “one fits all solution” when it comes to fighting and preventing over-indebtedness. The effectiveness of interventions to counteract and prevent families from becoming over-indebted may be increased if they are adapted to each profile. Government programs and Interventions could be tailored to better respond to the specific challenges faced by the different profiles.
-> Click here to view the complete presentation
-> Click here to view the complete report on “Good Practices in Debt Advice”
TITLE Otimismo e Pessimismo, Decisões à Parte: A Influência das Emoções em Contexto Financeiro
AUTHOR Hugo Alexandre
TITLE O efeito das emoções na tomada de decisão em contexto financeiro
AUTHOR Karen Gouveia
TITLE O papel das emoções e a percepção de risco em decisões financeiras
AUTHOR Marcelo Rodrigues
TITLE Será que não aprendemos? House Money Effect e o Sobreendividamento em Contexto de Reposição de Rendimentos vs. Recuperação Económica
AUTHOR Diogo Santos