The French are big savers… but still very cautious investors. In question? Psychological reflexes that influence their financial decisions without them realizing it. Risk aversion, followership, familiarity bias… These “behavioral” or cognitive biases slow down people from taking action or can cause them to miss opportunities. To better understand them, BlackRock conducted a study with the OpinionWay institute (“Behavioral biases linked to investments”), published this Wednesday, October 15. Estelle Castres, Managing Director of BlackRock for France, Belgium and Luxembourg, deciphers the lessons for Capital.
Capital: What are the cognitive biases that most impact investors?
Estelle Castres: The objective of this survey was to understand why some French people are still hesitant to take the plunge into financial investment, even though this type of investment can make their savings grow. This financial education approach has led us to take an interest in these reflexes and perceptions which influence our investment decisions in an irrational manner. We like to believe that investing is based on reason, on a logical sequence of figures and analyses. However, our emotions and habits guide our decisions much more than we think.
Eight out of ten French people are sensitive to at least one of the fivebiases that we studied in the survey. The first is risk aversion. To the question: “What would be your first instinct if you had to invest in the stock market? »44% respond: “I prefer to avoid any risk of loss even if that means giving up greater added value.”
The second very widespread bias is familiarity bias. Rather than choosing an investment based on its return prospects, 56% of French people prefer to invest in areas they know or at the local level. Finally, the following bias also plays an important role: almost one in two French people say they draw inspiration from those around them (parents, friends, spouse) to invest. However, copying the choices of someone close to you can lead to decisions that are unsuitable for your own investment objectives, if you are not the same age, for example, or have a different investment horizon.
Are certain age or gender categories more affected than others?
Yes, the differences are very marked. Women are on average more prone to risk aversion than men when placed in a situation: 59% versus 50%. They also consult those around them more before investing. It is therefore essential to encourage their financial autonomy, particularly through education.
Conversely, young people aged 18 to 24 are more comfortable with the idea of taking risks: 57% of them show an appetite for risk, compared to only 44% on average. They understand the value of investing early, for the long term. This is very good news, because it will allow them to build their financial future more confidently. We also see it in their knowledge of financial instruments like ETFs: 39% of 25-34 year olds can say what it is, compared to 8% of 50-64 year olds.
Are the French still protected from certain biases?
Yes, one of the positive signals from the survey is the relative resistance to recency bias. Nearly 80% of those surveyed say they have confidence in the long-term performance of the markets. This is a fundamental point: over a long period of time, stock markets historically tend to progress, despite temporary crises. This shows that a large part of the population understands that investing over time is often more profitable than letting your money sit in very conservative investments, such as savings accounts.
How can we reduce the influence of these biases?
First, by refocusing the discussion around life goals: why do you want to save? Is it to buy real estate, finance your children’s studies or prepare for your retirement? Once these objectives are defined, we can adjust the level of risk according to the time horizon. The longer it is, the more relevant it is to introduce dynamic investments such as stocks.
Then, we must insist on pedagogy. Financial players have a role to play in helping to democratize the main principles of investment, such as diversification, regular payments, and the possibility of gradually investing small amounts.
It should be remembered that starting to invest can be done from 5 or 10 euros, with diversified products. ETFs like those indexed to MSCI World provide exposure to more than 1,400 companies around the world for a very modest investment. And with regular scheduled payments, even small ones, you can build a solid portfolio, adapted to your projects, particularly long-term.
*The five biases
Risk aversion: 44% of French people prefer to “avoid all risks of loss” when considering an investment in the stock market
Familiarity bias: 56% of French people opt for an investment that is familiar to them rather than an investment based on prospects of profitability.
Followership bias: 46% of French people limit themselves to consulting their close circle (friends, colleagues, spouse, parents, children) to make their investment decisions.
Recency bias: 80% of French people analyze the dynamics over time and the historical performance of an investment
Anchoring bias: 55% of French people would keep a stock if its value fell, instead of selling it or buying more.
