Investors may not realise, but every move they make is tracked by teams of psychologist trying to work out why they do the things they do.
Financial services companies, especially wealth managers, have teams of profilers who want to design products and services to lure certain types of investor.
The firms say that this is to help investors understand markets and improve their decision making, but the goal is more likely to gently persuade them to past with more money.
At the same time, regulators have behavioural psychologists pulling in the opposite direction.
They want to level the playing field for consumers by taking the trickery out of financial products and advice.
Why investors make wrong decisions
The Financial Conduct Authority (FCA) is publishing a series of occasional papers on the topic.
The first looks at how financial firms can exploit psychological bias in investors. The conclusion is sensible investors can make wrong decisions by looking at choices the wrong way.
The FCA feels if this thinking is hard wired and then manipulated by financial firms, regulators will have to look at ways of compensating for the actions by changing the rules about how financial products are designed and sold.
Download the FCA paper on behavioural psychology in financial services
Wealth managers try to pass off as more benign – explaining the object of behavioural analysis is not to make more money but to better help investors handle their cash.
Barclays Wealth Management has a behavioural finance team with the stated aims of understanding how investors make their buying and selling decisions and targeting advice.
Download the Barclays Wealth Management white paper on making investment choices
Humans v computers
The latest financial firm to reveal their hand over behavioural psychology is Standard Life.
The firm includes an article on the topic in their investment magazine for customers, giving the same explanations as Barclays for running their team.
Frances Hudson, of Standard Life Investments, said: “Our research is about man against machines. Traditionally, humans can think on their feet and make quick judgments, while machines analyse massive piles of data over long periods of time.
“We are trying to understand investor behaviour to incorporate human expertise and artificial intelligence into decision making. This enhances our insights into risk management and adds to a range of tools that try to predict the markets.”
Download the Standard Life magazine discussing behavioural psychology in investors
Standard Life want the best of both worlds, where the human touch remains in investment picking, but the power of computers sifts through data to predict trends and relationships in markets.
