Financial Behaviour Decoded: Q&A with Behavioural Finance Expert Merle van den Akker - Part One
““Your worst enemy is not the market, but your own instincts.””
Behavioural finance is more relevant than ever, especially as the cost-of-living crisis forces many people to rethink their money management.
In this Q&A, Merle van den Akker, a behavioural scientist turned product manager, shares how understanding psychological biases can help us make smarter financial decisions and why investing is key to staying ahead.
Louise: “So Merle, welcome to 42courses. Tell us a bit about your background in behavioural science and banking.”
Merle: “Hi! Well, I have a Master's in Behavioural Science, and my PhD research was on how people handle different forms of money. It was just as contactless payments were being introduced in the UK. I got lucky as I worked with a data set from the Commonwealth Bank, which was looking at mobile payments becoming compatible with their systems.
After my PhD, I joined the Behavioural Science team as an applied behavioural scientist, where I spent over two years working on amazing projects ranging from personal finance management to integrated systems, AI and even power of attorney abuse.
But my true love became working with the investing team. Getting people to invest and addressing all the barriers in the financial journey is the thing I still find most fascinating. I ended up joining that team as a product manager. But don’t let the title fool you - I’m still applying all my behavioural insights!”
Louise: “You share some of your expertise in our new 42courses Behavioural Finance course. Why is this topic so relevant today?”
Merle: “Behavioural finance is a fascinating space but I feel like it might be misunderstood. A lot of people just don’t want to engage with their finances and think that financial decision-making is either difficult or, even worse, boring. But nothing could be further from the truth!
We cannot afford to live in the luxury of ignorance anymore. The cost of living crisis has negatively affected most people. Understanding decision-making regarding money – and how to optimise it – is now more crucial than ever, and understanding investing is a necessary step in this process.”
Louise: “How did you first become interested in behavioural finance? Were there any early experiences that shaped your thinking?”
Merle: “You can ask anyone who knew me during my undergrad what my financial situation was. Any money I earned was fully spent on going out drinking and buying shoes…so many shoes! Had the Netherlands been a credit card country at the time, I would still be paying off that debt.
But the more I learned about psychology, the more perplexed I became by my behaviour. No one can wear fifty pairs of heels at the same time! So I started doing what I called ‘me-search’.
I figured out what I was doing, and how to set money aside to save and then invest. You can’t imagine how proud my dad, who is a neoclassical economist, was when I made my very first investment!”
Louise: “What are some of the biggest psychological biases that influence our financial decisions?”
Merle: “When it comes to the inability to save, Present Bias, the need to have something now, is killer for our ability to set money aside to save, or invest. And even when people have the money to invest, many just do not start.
I see three core reasons for this. Number one is just a general lack of awareness of the subject. Number two is poor financial literacy about specific things, like compound interest. And three, risk aversion.”
Louise: “And Merle, can you share an example of how these biases play out in real-world investing?”
Merle: “Let’s start with awareness. For lots of people, the idea of investing just doesn’t cross their radar. They might be aware of it as a theoretical concept, but not as an actual financial step. This is highly dependent on their social surroundings, as people are much more likely to invest if people in their inner circle are also investing.
About financial literacy. To start investing, you need to understand how basic compound interest works. Most people grossly underestimate how much, say, an 8% return on $1,000 for 10 years would be. (It’s $2,158.92 without dividend reinvestment or repeated investment, by the way!) This underestimation is the reason a lot of people think you both need a lot of money to start and to make investing ‘worthwhile’, which is another huge problem.
And then last, risk aversion. People hate losing money! And with investing, of course, there’s a chance of losing money, as investing comes with risk. And this makes the much safer savings accounts look much more appealing all of a sudden, as the majority of us are risk-averse.
The issue with this is that, generally, we are terrible at quantifying the real impact of risk and the likelihood of something happening. We have a heavy bias towards overestimating small probabilities, which, in this case, means the chance of losing a significant chunk of money over multiple years. This can stop a lot of people dead in their tracks when thinking about investing.”
Louise: “So how can people become more aware of their own biases and make better decisions?”
Merle: “The more you know about yourself, the better off you are. For example, if you know that you’re a very ‘reactive’ person and would sell your portfolio as soon as it drops more than 20% below what you bought it for, volatile assets are not for you. Or maybe managing your portfolio is not for you.
Knowing yourself and how comfortable you are with certain decisions depends on your circumstances and your financial support network. The more you know about yourself, the better you’ll be able to protect yourself from, well, you! To help identify your financial behaviour, I love a risk-profiling tool.”
In part two of this Q&A, Merle explores the practical side of behavioural finance, sharing actionable tips for overcoming biases and making more confident financial decisions. Stay tuned.
If you enjoyed the above, you’ll love our Behavioural Investing course, launching in April.
In the capable hands of Dr Greg B Davies and other investment professionals, you’ll learn how psychology and behavioural biases shape your financial decisions (often leading to costly mistakes) and how to manage them effectively to achieve the best investment outcomes.
Don’t delay, pre-register today!
