Impact of Behavioural sciences

Behavioural science explores cognitive functions within organisms.  It studies how organisms interact and behave in the natural world. As far as human beings are concerned, behavioural science explores how the actions of humans are generalised and the relation of their influence on society. The impact of behavioural sciences in financial accounting helps strategic planning, financial reporting, control, etc. It explains the psychology behind these processes. The effect of behavioural sciences is more significant in economics and finance as the results can be used for developments in both fields. 

Behavioural sciences

Behavioural sciences involve keen observation and formulation of conclusions. These observations are gathered using anthropology, cognitive science, commerce psychology, and psychobiology. Generally, behavioural sciences involve observing human actions and formulating generalised theories based on inferences.

The impact of behavioural sciences can be seen in many fields. It is the art of knowing people and their behavioural patterns. This helps in data analysis, marketing, business, and strategy planning. Understanding how people think makes it easy to influence their decisions.

During a study, behavioural scientists have found that human beings make 95% of their decisions using rules of thumb or mental shortcuts. And these decisions can be influenced by using a few tricks. 

The Choice Architecture 

The impact of behavioural sciences on our decisions can be used by businesses and marketing agencies to grow their financial sector.

• Businesses can manipulate their customers’ minds by using tricks.
• Sellers and marketing companies can attract new customers.

The choice architecture provides freedom of choice and favours specific actions. 

Here are a few tricks in the choice architecture designed by the impact of behavioural sciences in financial accounting and marketing.

Default choice

Consumers tend to go for the easy option. That’s because it minimises the effort involved in choosing what to buy. Hence, they’re more likely to go for the default choice.

Short-term benefit

The customers tend to go for products and services that provide short-term benefits. Amidst this, they often ignore the long-term benefits, drawbacks, and other factors. 

Advertising and Campaigning

Advertising and campaigning are great examples of the impact of behavioural sciences on human psychology. When a customer sees advertisements, they trust that brand. Hence, customers are more likely to purchase those brands.

Packaging

Packaging of products often makes an impact on the decision-making. The goods with attractive packages sell quicker. Good packages create an illusion of quality. For example, a customer is more likely to buy shampoo with a picture of shiny hair on the packaging, which claims to be keratin-free rather than shampoo in ordinary packets.

Choice over time

When customers are presented with time-sensitive offers, they are indirectly affected to purchase in a limited time. So even though they might not currently have any use for that product, they may decide to buy it during the offer time. In this manner, unnecessary purchases are made. 

• For example, a customer is thinking about buying a television when he moves into his new house; however, he knows about a sale. The sale claims to sell televisions at a 40% discount on market price. The offer is only available for four days. So hastily, the customer is pressured into buying a television even though he does not need one right now.

Impact of behavioural sciences in financial accounting

The impact of behavioural sciences is seen in the financial accounting field. Since the investors are the people who work towards maximising wealth, they need to make rational and beneficial decisions. Since these decisions can have significant financial consequences, it is important to study the underlying factors.

Most financial advisors keep a few things in mind while working with the client:

•  Most investors make decisions with rules of thumb for shortcuts.

• The investors present the information through a collection of narratives.

Another significant impact of behavioural sciences on the finance field is understanding how investors have distorted views of loss, termed myopic loss. It focuses on the short-term volatility of the market without considering long-term profits. As a result, the investors fail to make optimal choices. Such investors excessively depend on the market’s volatility and make too many moves.

The technique of Anchoring also impacts financial accounting majorly. Anchoring affects the decisions of the investors. The investors cling to the standard level whether it’s an appropriate decision or not. They consider a company that previously had great success a safe investment despite new changes.

The limited mindset of investors is another behavioural characteristic that affects their rational and optimal decision-making while handling finances.

Conclusion

The behavioural sciences outline the thought process of people and carefully make strategies based on it. The impact of behavioural sciences in the finance field is quite significant since it greatly influences customers’ decisions. A designer can create an environment that leads to the customers favouring one choice over the other.

Such manipulation techniques are called “nudges”. The packaging of products also plays an essential role as attractive packages force the customer to believe in the quality of the product. Financial advisors understand behavioural sciences well and accordingly present information to the investors to help them make the right decisions.