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By Philipp Erik Otto

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Additional info for Cognitive Finance: Behavioral Strategies of Spending, Saving and Investing (Economic Issues, Problems and Perspectives)

Example text

3. The number of participants out of all 13 who applied each of the selfcontrol tools in their saving structure is shown. ‗Automatic transfers‘ describes any automatic sweeps between accounts. ‗Elimination of alternatives‘ covers limited access, as well as liquidity restriction. Under ‗budgeting‘ falls only the explicit separation into several specific budgets. ‗Supporting cues‘ mean automatic information given by the structure to guide saving. ‗Increase distance‘ stands for receiving less information for parts of the structure.

The results of the 32 derived spending clusters provided the starting point for a factor analysis; considering the individual amount spent in each cluster. It is desirable to use the smallest number of factors while explaining as much variance as possible. To determine the optimal number of factors, all 32 possible factors are generated along with the variance they explain. Starting with the strongest factor the explained variance decreases over the factors. A measure for selecting a useful number of factors is the eigenvalue of the factors, which measures the importance of a factor, by giving an estimation of the variance explained by that factor in a given data set.

3 Spending Strategies 33 To illustrate how to apply the debit factors an example is provided. The factors can be used to optimize the targeting method for products with a high factor correlation, serving as a predictor for purchasing likelihood. This application can be seen as an experiment to test the robustness of the underlying factors in predicting behavioral differences. Therefore, the model‘s relevance for applications is used to document its theoretical significance for describing differences in financial behavior.

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