chapter  4
16 Pages

Understanding how consumers make fi nancial choices: a cross-disciplinary learning experience

ByHazel Bateman, Jordan Louviere, Susan Thorp

Every day, individuals must make dozens of choices. Most choices are inconsequential, such as choosing many fast-moving consumer goods like breakfast cereals or paper towels. Some are very consequential, such as the choice of mortgage type, allocating retirement savings across a menu of investment products and choosing whether or not to use retirement savings to buy a life annuity. What sets such fi nancial choices apart from choices of fast-moving goods or dayto-day services (such as dry cleaning or garden maintenance) is signifi cant uncertainty about the key factors underlying the consequences of the choices and the element of risk. Indeed, many major fi nancial choices involve credence goods, where individuals can never know all the consequences (good or bad) of their choices in advance, which is also why they are seen as risky.