Tuesday, May 2, 2017

The Availability Heuristic and The Proclaimers

Availability is a cognitive heuristic in which a decision maker relies upon knowledge that is readily available rather than examine other alternatives or procedures.  It uses strength of association for the judgement of frequency.  For example, one may assess the divorce rate in a given community by recalling divorces among one’s acquaintances.


Smokers who have never known someone to die of a smoking-related illness might underestimate the health risks of smoking.  The problem with relying on this kind of shortcut to judgment is that it often leads to poor estimates and bad decisions.  




This bias seems prevalent in many walks of life.  The news industry can even contribute with a little help from the human mind.  Remember the Ebola panic of 2014?   News of a rare disease in this country caused something just short of hysteria among the American population. Why? Because the media went wild. Article after article surfaced with the tiniest developments in the American cases.  In fact, the total confirmed cases of Ebola in the US were only 4.  The only actual transmission of Ebola in the United States occurred when a man in the last stages of the disease (most contagious) transmitted it to his healthcare professionals.  The others recovered and were discharged.




The financial services business is no exception.  Here is a response we have heard countless times as we have tried to arm our insurance consulting partners with solutions to assist their clients:


“That is too expensive.  My client would never buy that.”


Who is it too expensive for?  You the advisor?  Remember your financial situation is different.


The next response is:


“I’ve never had client spend(fill in the number)... $500/mo for coverage.”


So they don’t exist?  Sure they do.  You probably have some existing clients who would be very underinsured if they are only spending $500 per month.  Would you try to insure a skyscraper for what you pay in homeowners insurance?  Open your brain.


Many insurance agents look at what a client currently has and provide a lightning fast reflex type response: I can do it for Cheaper. Why?  Because saving someone money is the way to earn their business?  That’s the Availability Heuristic whispering in your ear.  Until you know someone’s entire financial picture, you cannot know if something less costly is better or worse.  


Also, not every dollar spent should be seen as a pure cost.  Look at the benefit it provides.  It could be piece of mind, business continuity, tax benefits, improved employee morale etc.  Let’s start from the beginning and use reason and logic to get our answers on how best to serve the client.


What about self serving bias.  People tend to give themselves credit for successes but lay the blame for failures on outside causes. When you do well on a project, you probably assume that it’s because you worked hard. But when things turn out badly, you are more likely to blame it on circumstances or bad luck. This bias does serve an important role; it helps protect our self-esteem. However, it does often lead to faulty attributions, such as blaming others for our own shortcomings.


We see our consulting clients push back.  Many find it tough get beyond this bias.  They use their own failures or successes as a guide to what they think the whole buying population wants.  One too many failures or successes early in their career can shape the rest of their work life.  Here are some of the things we have heard our consulting clients say:


  1. My clients only buy term insurance
  2. My clients don’t want to do health exams
  3. My clients like what I sell them
  4. My clients don’t buy life insurance
  5. My clients do what I say
  6. Term insurance is a bad deal, why would anyone buy it?
  7. I just sell (blank) because that’s what I know
  8. Disability/LTC is too expensive


These people have all shaped their opinions over time toward what creates less pain for them.  This leaves no room for the flexibility to really do the right thing for every client.  How many opportunities are you missing because of this mindset?  Why wouldn’t you want to have every feasible option availability so as to not limit yourself and in doing so provide a better client experience?  Don’t let the pain of possible failure be a roadblock.

I’m fairly confident The Proclaimers were in customer service prior to starting a band.  As a homage they wrote in 2 lines for song you can’t get out of your head.




When I'm working yes I know I'm gonna be
I'm gonna be the man who's working hard for you

I would expect most financial professionals say they are indeed doing so.  Many times their actions don’t reflect that.  They may not even realize they have a bias.  Take this as some cold water (or slap) to your face to snap you out of these tendencies.  Now that you know (half the battle) put in the real work to improve.