Posted: 22 Sep 2010 07:43 AM PDT

The psychology of financial decision making and economic crises

Public release date: 22-Sep-2010
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Contact: Keri Chiodo
kchiodo@psychologicalscience.org
202-293-9300
Association for Psychological Science

How could the current financial crisis have happened? While fingers have been pointing to greedy banks, subprime-loan officers, and sloppy credit card practices, these are not the only contributors to the economic downturn. A new report in Psychological Science in the Public Interest, a journal of the Association for Psychological Science, examines the psychology of financial decision making, including the role of risk in making economic choices, how individuals behave in stock and credit markets, and how financial crises impact people's well-being.

Risk taking is a very important component of financial decision making�If we take out a big loan, will we be able to pay it back? Should we buy shares of a company that is unknown but has potential for great success? In this report, authors Tommy G�rling (University of Gothenberg, Sweden), Erich Kirchler (University of Vienna, Austria), Alan Lewis (University of Bath, UK), and Fred van Raaij (Tilburg University, The Netherlands) note that when it comes to making decisions under uncertainty, people tend to be more influenced by perceived risk than by objective risk. People who are extraverted and high in sensation seeking are likelier to take more and higher financial risks than are people high in conscientiousness and anxiety. "The general implication is that financial crises may have more serious consequences for people who are more likely to take financial risks," write the authors.

Efficient-market theory states that stocks should always be traded based on their real value. However, 5 minutes on the floor of the New York Stock Exchange reveals a different reality: Stock investors overreact to news (especially of events that threaten the world economy), selling winning stocks too soon while hanging on to losing stocks too long, and following other traders' leads in buying and selling stocks. According to G�rling and his colleagues, stock market investors are prone to cognitive biases (such as overconfidence), which are reinforced by affective and social influences and these may contribute to several phenomena observed in stock markets (e.g., volatility of stock prices, due to excessive trading).

Many people rely on credit, not just the plastic card kind, but also in the form of automobile financing and loans from friends. Credit use involves many different stages of decision making, including deciding whether or not to purchase a product using credit and determining a strategy for paying back the borrowed money. The authors observe that "many credit users are facing a complex task when they decide to take up credit and that they often fall prey to cognitive errors when anticipating their experiences with credit payback."

Financial crises take a large toll not only on people's wallets, but also on their behavior. Consumer confidence affects spending and saving. Individuals cope with financial crises in a number of ways, for example by shopping in cheaper stores and eating out less. Making lifestyle changes (e.g., selling the car, making their own clothing) is very difficult for most people and is often a last resort to dealing with economic troubles�these changes clearly signal to themselves and others that they are struggling financially.

Are financial crises inevitable? The authors argue that bringing about change in financial institutions may not be easy, but they offer suggestions for improving economic decision making. For example, educating consumers�by offering economics courses to children in school and teaching consumers how to appropriately handle credit�and by making financial institutions more responsible (e.g., banks offering Web-based programs to assist with budgeting).

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For more information about this study, please contact: Tommy G�rling at tommy.garling@psy.gu.se.

Psychological Science in the Public Interest is a journal of the Association for Psychological Science. It publishes an eclectic mix of thought-provoking articles on the latest important advances in psychology. For a copy of the article "Psychology, Financial Decision Making, and Financial Crises" and access to other Psychological Science in the Public Interest research findings, please contact Keri Chiodo at 202-293-9300 or kchiodo@psychologicalscience.org.

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Carlos Lee and psychology verse statistics

Posted: 22 Sep 2010 01:22 PM PDT

This morning I was reading Alyson Footer's latest blog post, in which she wonders if Carlos Lee playing at first base has had a positive effect on his concentration level.

You also have to wonder if playing first base has helped Lee at the plate. Is playing a position where he is involved in nearly every play, which in turn requires non-stop concentration, helping him focus better at the plate? There seems to be long stretches of nothingness while standing in the outfield, and I can see where it would be easy to become distracted or let your mind wander. Maybe the concentration that's there when Carlos plays first base lingers when he is hitting. It could be the best explanation as to why his bat has come to life after hitting around .240 for the better part of four months.

I absolutely believe Alyson is one of the best writers in baseball. I haven't always agreed with her opinions, but they are always well thought out and level headed.

Clack mentioned, in last nights game thread, that this was an argument one of the radio guys discussed during the game last night. If we're going to use that line of thinking why not make an argument that since he has to run less to get to his position now he must have more energy to hit the ball. Seems kind of silly.

You can in fact statistcally explain why Lee has played better at first base. Brad Mills has gotten into the habit of sitting Wallace against left handed starters in favor of Lee, essentially establishing a platoon at first base. Against lefties Lee is hitting .278/.333/.452, against righties .240/.276/.413, that's a pretty significant split. Playing mostly against lefties at first base will give the illusion that it has helped Carlos Lee.

There is another statistic we use around her that also helps to explain Lee's sudden resurgence. Batting average on balls in play (BABiP) which helps explains the luck factor for a player. Lee on the season, has a .239 BABiP which is significantly lower than his .286 career BABiP. This means he has not been especially lucky on balls that he puts in play. As his BABiP improves towards his career average so will his performance.

I'm not discounting entirely that their is some psychological effect to Lee moving to first base, but statistically Lee was due. And if Lee is having concentration issues in left field, then maybe he needs to sit a few more games than he has been. I'm not saying bench him, but if he's having issues mentally then, giving him a day off here or there would benefit him mentally.

If we're going to use psychology for Lee why not make the same case for Brett Wallace. I understanding having him sit a few games, it is a good strategy, but what effect does this potential move have on him. Sure you can say he'll probably handle it, he should, but look at his past. He's been traded from St. Louis, to Oakland, to Toronto, to Houston, and now he's going to be jerked around between the Major Leagues and Minor Leagues. How is Wallace supposed to gain confidence when every where he ends up the team is shipping him out.

That's the other thing that bugs me about this potential move is that the Astros say their finally in rebuilding mode. But they're not. If they were they wouldn't be to concerned with how a young player does in such a small sample size. Why trade for Wallace if you were not going to commit to him and let him work through his struggle. It is a step in the wrong direction, and makes the front office look like they don't have any foresight.

Moving Lee to first base does decrease his impact on the defense, but the Astros do not have a better hitting prospect than Wallace to play in left field. Every game Wallace sits is one more game he isn't going to be able to prove himself. One more game sat is one more game in which you have no evaluation for him, pushing back further a determination of what you have with Wallace. For a team supposedly in rebuilding mode that should be the priority.

Alyson mentioned the silver lining in sending Wallace to Triple-A will at least provide positional depth at first base. If the Astros can't commit to Wallace now that's all he will be.

RHR International Recognizes Dr. Mary K. Kralj for Excellence in Consulting Psychology

Posted: 22 Sep 2010 08:33 AM PDT

Press Release Source: RHR International On Wednesday September 22, 2010, 11:33 am EDT

CHICAGO--(BUSINESS WIRE)--The Society of Consulting Psychology recently announced the recipient of one of its highest honors. The "RHR International Award for Excellence in Consultation" for 2010 was presented to Mary K. Kralj, Ph.D. This recognition is given to an individual with a distinguished career in the practice of consulting psychology. Sponsored by RHR International, it honors founding member Perry L. Rohrer, who epitomized the standards of excellence that RHR and the Society seek to perpetuate. Previous winners of this tribute include Drs. Vicki V. Vandaveer, Lester L. Tobias, Frank Budd, Jagdish Sheth, and Susan Mohrman.

Dr. Kralj's career is rooted in the diverse worlds of Business and Psychology. As an academic, she was an Assistant Professor at the University of Maryland for six years. This was followed by stints at PAR Government Systems and The Human Resources Research Organization. She then began her career as a corporate psychologist, serving with several of the most prominent consulting firms in the United States, including RHR International. In 2000, she established her own consulting group in Washington, DC (Mary Kralj and Associates) where she continues as Principal.

In addition to her consulting, Dr. Kralj has represented the Society on the American Psychological Association Council of Representatives and served on the Editorial Board of the Consulting Psychology Journal for ten years. She has also been a Review Board Member of the National Register of Health Service Providers in Psychology. She has received teaching and research awards from the University of Maryland, and has been a guest lecturer/mentor at the University of Virginia, Drexel University and Cornell.

Dr. Kralj earned her doctorate at the University of Virginia, where she also completed a Certificate in Business Management.

"As a former colleague, Dr. Kralj is well known to many of our consultants," said Diane Lepley, Director of Talent Acquisition for RHR International. "We know firsthand of her many contributions to the field of consulting psychology and are pleased she has been chosen as a recipient of this award."

ABOUT RHR INTERNATIONAL

We are a firm of management psychologists and consultants who work closely with top management to accelerate individual, team and business performance. We focus on five key areas of client need — Executive Selection and Integration, Accelerated Executive Effectiveness, Senior Team Effectiveness, Management Due Diligence and CEO Succession. We have been proven difference-makers for more than 65 years, unique in our combination of top management focus, psychologists' perspective and high-level business acumen.

RHR International has offices in Belgium, Brazil, Canada, China, France, Germany, Italy, Switzerland, United Kingdom and United States. The company is headquartered in Chicago, Ill. For more information, please visit www.rhrinternational.com, http://tinyurl.com/rhrblog and https://twitter.com/RHRIntlLLP.

Psychology

Wednesday, September 22, 2010

“The psychology of financial decision making and economic crises” plus 2 more

“The psychology of financial decision making and economic crises” plus 2 more

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