Cultural Influences on Financial Decisions
February 12, 2025
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The main criticism of the Barnewall model was that it only classified investors into two types. This created an oversimplification. Practitioners of behavioral finance wanted the classification to be more accurate and inclusive. This is the reason why they started creating another psychographic model.
This model is called the Bielard, Biel, and Kaiser model, i.e., the BBK model. As a part of this model, investors are classified into four different categories instead of the erstwhile two categories.
In the case of the Barnewall model, investors were classified based on one single parameter. Hence, they could be plotted on a single axis. In the case of the Bielard, Biel, and Kaiser model, this is not the case. The model is two-dimensional, and hence there are two axes involved. Since the intersection of the two quadrants creates four quadrants, the investors are divided into four categories.
The first axis in the BBK model is the level of confidence which the investors possess. Investors who have a high level of confidence with regards to health, money, etc., also have a high level of confidence with regards to their investments. This axis basically classifies investors into two types, viz. confident and anxious.
The second axis in this model is the method of action. The second axis measures the degree of rationality exhibited by the investor. Here the question to be asked is whether the investor is methodical and follows a predictable pattern of collecting information and analyzing it before making decisions. On the other hand, the investor could make emotional and erratic decisions without following any due process. This axis classifies investors as careful and impulsive.
The combination of these two axes creates four different types of investors. Their characteristics are as follows:
From the advisor’s point of view, such investors can be difficult to give advice to. This is because they have their own ideas about investing and are not afraid to test them in the marketplace.
Guardians are generally people who have a limited earning capability. Hence, they are more likely to preserve the assets that they have instead of taking risks. Guardians are generally not interested in volatile investments.
As an investment advisor, they can be difficult to advise since they are also partly driven by the emotion of fear. If these clients get a feeling that the advisor is overbearing, they are most likely to change the advisors as well.
This model becomes widely popular after the Bernewall model and continues to be used till today by the investing community.
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