Applying Human Psychology in Financial Analytics — The 7 Emotional Triggers

In this post, It is my attempt to briefly discuss the seven emotional triggers that people have when they are making decisions about financial matters. These emotional triggers will not only help better understand people’s outlooks and behaviors, but can also help design highly effective models. They are as follows:
1. Fear of the Unknown- A deep fear that the future could be worse than what is happening today
2. Fear of Loss- A deep fear that you are losing out on an opportunity or will lose something
3. Fear of Change- A deep fear that change could be bad for you
4. Fear of Death- A deep fear of death
5. Loss Aversion- An emotional attachment to things that we own and a strong negative reaction to losing them
6. Reciprocation Bias- The tendency to return favors and gifts
7. Scarcity Appeal- The tendency to want what we can’t take and the strong desire to acquire something that is scarce
These triggers will help you better design financial models by incorporating the fundamentals of human behavior, which in turn will help you make sound financial decisions.
In my opinion, this information is critical to understanding psychology when designing models. It’s not just about data, but about how people think and react with each other in certain situations.