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Research · Rod Duclos

Risks and rewards

Jan 1, 2016

stock chart

People say that money can’t buy you love. But be advised that a lack of love can make people who feel jilted — or alone — buy riskier investments as they try to fill the emotional void in their lives. That is just one of the many enlightening insights generated by Ivey Business School Marketing Professor Rod Duclos, whose research as a behavioural psychologist aims to improve consumer and societal welfare.

“For as long as I can remember, I’ve been interested in figuring out why people do the things that they do and make the decisions that they make,” says the 38-year-old native of France, who joined Ivey in mid-2015 following teaching stints at the Hong Kong University of Science & Technology (HKUST) and the University of North Carolina at Chapel Hill. “So as a business school researcher, I have focused on the psychology of money, trying to uncover insights into how and why people spend and invest money in the ways that they do.”

The above-mentioned insight into how relationship status can impact individual risk tolerance was featured in a 2013 article published by the Journal of Consumer Research, which was entitled “Show Me the Honey! Effects of Social Exclusion on Financial Risk-Taking.” Working with Echo Wen Wan and Yuwei Jiang—two other marketing professors (from the University of Hong Kong and Hong Kong Polytechnic University respectively) — Duclos examined the effects of social exclusion on financial decision-making in four lab experiments and one field survey. Simply put, the research found that feeling isolated or ostracized causes consumers to pursue riskier financial opportunities, but not due to impaired judgement or lower self-esteem. The researchers found that willingness to increase financial risk taking when feeling disconnected or rejected stems from a heightening of what Duclos calls “the instrumentality of money.” In other words, consumer risk tolerance was found to increase as money was substituted for popularity in the pursuit of happiness.

“It is important to note that this phenomenon can actually benefit consumers because financial reward levels are tied to a person’s willingness to accept risk,” Duclos notes. “But it is also important for both investors and the financial community to understand what drives financial decision making. Keep in mind that feelings of social isolation can be easily manipulated to increase an individual’s willingness to accept risk. Furthermore, our research highlights the need for more study of social exclusion and how it influences a wide array of human behaviours.”

More recently, in a newspaper investing column called “How charts may be hazardous to your portfolio’s health,” Globe and Mail finance writer Tim Shufelt highlighted findings from another article by Duclos entitled “The psychology of investment behavior: (De)biasing financial decision-making one graph at a time.” Published in 2015 by the Journal of Consumer Psychology, the research paper noted how stock charts meant to spur informed financial decision-making can actually bias an individual’s evaluation of financial information and compel investors to act irrationally.

“That research is really important because of the proliferation of graphical tools designed to help retail investors make sense of market data,” says Duclos, who warns novice and professional investors alike to be wary of graphs. “While valuable for displaying information, graphs can lead people to place more weight on recent data when doing so is not warranted. This can make people imagine trends that have no basis in fact.”

In addition to being published in top academic journals, Duclos’ work as a behavioural psychologist has received a wide range of popular media coverage, ranging from TIME Magazine and US News & World Report to television news networks such as CBS and NBC News.

“Seeing my academic research make its way out into the greater world always gives me great satisfaction,” he says. “After all, a lot of consumer behaviour research can be used to influence consumers in hidden ways. Personality traits and environment are the two broad drivers of consumer behaviour. And while personality traits are fairly well entrenched, they can be manipulated along with the decision-making environment, decision-making architecture and decision-making context, so most of my research aims to do good by doing things like helping charities raise more money and educating consumers on the ways that their minds work when making financial decisions. In other words, I try to level the playing field.”

Along with following up on findings from previous research, Duclos is currently examining how colour impacts decision making by changing the appearance of Roulette wheels—but not the odds of the game. The Ivey professor is also researching how personal savings levels can be influenced by the method in which an individual receives income, meaning cash vs. electronic deposit.

“The study on saving behaviour could offer significant insights that help improve retirement planning, which is a major issue across North America,” he says.
So does all his research into financial decision-making mean Duclos can also offer top-notch investing advice?

“I definitely wouldn't say that,” he laughs, “Maybe I’m wiser than some consumers on how decisions are made and how presentation of data can influence my decisions, but that doesn’t make me an investment guru. I’m not a finance guy.”