Financial education has been shown to be an essential set of knowledge for daily life, not only because it helps people to have a deeper knowledge of the different financial products and services to choose from, but also because it helps in the decision-making process, refining it and making it more impervious to biases of any kind, including those of a behavioural nature. It is evident that the greater the knowledge, the less influence that psychological factors have on the decision, since the knowledge would act as a “counterweight” to these impulses or shortcuts that impel a person to make a certain decision.
Knowledge of an economic nature and, more specifically, that of economic and financial history are also important. This type of teaching can also help to minimize the influence of behavioural biases, since, regardless of financial innovations, the “gear” of financial markets remains the same as it was decades ago and, therefore, its functioning also develops in the same way. In this sense, there is no doubt that knowing broadly the causes and consequences of certain milestones in economic and financial history is one more aspect that can be incorporated into the decision-making process, improving it.
However, the influence of the environment can cause that even with enough financial knowledge, decision-making ends up being erroneous because of cognitive biases. This is due to in certain situations, such as a bear market in equities, it is more difficult to make a decision to sell the shares of a loss-making company in the portfolio of an investor, who can count on wide accredited training, but this is partially or totally nullified with respect to the shares of that company as a result of the influence of the loss aversion bias.
In order to minimize behavioural biases, it is necessary to check whether some type of cognitive bias is influencing. The following aspects must be borne in mind in order to minimize the influence of cognitive biases :
- To generate alternatives. To make a good financial decision it is as important to have a good set of alternatives as to choose correctly.
- To temper optimism, which involves stopping to think about the reasons why the initial decision may be wrong.
- To standardize the decision process. It is about acting in a way in which a checklist can be used that takes into account aspects such as having read the product information, assessing whether the information received is complete, understanding the basic characteristics of the product, knowing in what is being invested, know the risks, know if the product fits with the investor profile of the decision-maker and if the time horizon is consistent; all this without neglecting the consideration of the behavioural biases that may have an influence on this process.
- To identify the right conditions for the decision-making process.
