Investment and Risk Tolerance
Hello Wallet Case
GIIM 636
Question 1: How do the concepts of behavioral finance create opportunities for HelloWallet?
The current financial advising sites such as HelloWallet as well as its competitors, such as Mint.com and Yodlee, provide budget and virtual financial advising service based purely on user bank transactions and spending category. The HelloWallet system allows the user to create and track customized budget plan. What is more important is that the system can automatically provide financial advice and saving tips by using data mining techniques.
However, HelloWallet and its competitors do not provide any financial analysis and evaluation based on user behavior and their psychographic characteristics, such as user personality, values, attitudes, interests and risk tolerance in terms of willingness. These psychographic classifications are extremely relevant with regards to individual strategy and risk tolerance. Even with the similar bank transactions data and spending category, an investor background, past experience, personality and attitudes can make investment process unique for each individual. With the help of behavior finance theory, HelloWallet can build system to fit psychographic profiles to specific behavioral investor profile. As a result, a better understanding of user behavioral tendencies of spending and investment will help to provide better financial advice.
An easy and quick way is to build online questionnaire to fit each individual into different behavioral investor types. There are several models we can use, Barnewall Two-way model, Bailard, Biehl, and Kariser Five model and Pompian model. We use Pompian models as an example. The major reason for promoting Pompian is because it is less time-consuming and less complex. Therefore, it will be easy to be implemented on an online system and require less time spent on filling out the survey (as we pointed out in challenge, it is not an easy task to ask online user to fill
GIIM 636
Question 1: How do the concepts of behavioral finance create opportunities for HelloWallet?
The current financial advising sites such as HelloWallet as well as its competitors, such as Mint.com and Yodlee, provide budget and virtual financial advising service based purely on user bank transactions and spending category. The HelloWallet system allows the user to create and track customized budget plan. What is more important is that the system can automatically provide financial advice and saving tips by using data mining techniques.
However, HelloWallet and its competitors do not provide any financial analysis and evaluation based on user behavior and their psychographic characteristics, such as user personality, values, attitudes, interests and risk tolerance in terms of willingness. These psychographic classifications are extremely relevant with regards to individual strategy and risk tolerance. Even with the similar bank transactions data and spending category, an investor background, past experience, personality and attitudes can make investment process unique for each individual. With the help of behavior finance theory, HelloWallet can build system to fit psychographic profiles to specific behavioral investor profile. As a result, a better understanding of user behavioral tendencies of spending and investment will help to provide better financial advice.
An easy and quick way is to build online questionnaire to fit each individual into different behavioral investor types. There are several models we can use, Barnewall Two-way model, Bailard, Biehl, and Kariser Five model and Pompian model. We use Pompian models as an example. The major reason for promoting Pompian is because it is less time-consuming and less complex. Therefore, it will be easy to be implemented on an online system and require less time spent on filling out the survey (as we pointed out in challenge, it is not an easy task to ask online user to fill