Trends and Opportunities for Innovation: Decision Making

Commonwealth is always looking for changes in the landscape that could lead to either new financial challenges or opportunities for new innovative solutions. Over the last year we have engaged in an extensive research project and have identified four areas (payments, insurance, decision making, and new actors) that we will be pursuing in the coming months. This is the first of four posts that highlights this work.

People make financial decisions, big and small, every day. How people make these decisions – who they make them with, when and where they make them, and what they are about – is rapidly evolving.

Commonwealth has been looking at changes that are creating opportunities to build innovative new solutions to the financial challenges faced by the financially vulnerable.  Financially vulnerable people are particularly susceptible to cognitive overload due to the persistent strains of financial insecurity.  The overload is magnified by the constant need to make stressful decisions quickly.  This underscores the need for decision making supports that work to support their needs.

Financial decision-making is seldom solely a do-it-yourself endeavor.  Individuals have long relied on family and friends and their community to learn about financial products and services. Financial decision-making support today comes also from online forums where users seek out advice from a broader community of perceived peers (e.g Facebook and Reddit), and from algorithms and artificial intelligence (for example, apps that analyze individual deposits and spending patterns to calculate how much can be saved).  As seemingly more impersonal forms of decision-making supports emerge, we are interested in how that might affect decision making. 

Decision-making also does not occur in a vacuum but is dependent on the context of available options.  Without appropriate financial services in place, positive decisions are not always possible.  For example, a young mother short on rent money may choose to take out a costly payday loan not because she believes it is the best choice but because it is the most readily available.  A decision-making tool directing her to something she cannot access is no support at all.

Technology offers the potential of simplifying decisions through automation.  At the same time, we should consider who is really making the decisions when “technology” is making the calls.  The judgment of a tool’s creators (those who design the instrument and craft the algorithms) with no accommodation of the user’s circumstances and values, could lead to financially harmful decisions.  This also highlights the important role of trust in the evolution of decision-making supports and the need to maintain consumer trust to persist in this role.

Technology also offers the potential to bring decision making supports closer to the moment of making a decision. For example, a notification on your phone could remind you of your savings goals as you step into a coffee shop or restaurant.

In the coming months, Commonwealth will design and test solutions that identify the moments when decisions are being made, the type of product or service that would be most beneficial at that moment, and test how it can be made accessible and attractive to use.

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