By James O. Mitchel
Behavioral economics is a blend of psychological and economic insights into how people manage risk and make important financial decisions. Research in this emerging field already has produced two Nobel Prizes in economics. Considerable evidence has accumulated over the years demonstrating that people do not process and act upon that kind of information in the ways we might typically assume.
We know most people do not have a good understanding of probability and risk, and many also face constraints — such as the household budget or emotional concerns — not contemplated by traditional economic theory. Because of these and other limitations,economists and psychologists began to look for alternative models to explain this area of decision making.
The result was behavioral economics, which provides more answers and acknowledges the role that psychological factors play in financial decisions. It helps us understand the seemingly irrational decisions consumers make about insurance and investments. The evidence that using the principles of behavioral economics can improve your sales effectiveness is compelling. That’s the premise of this article — you can influence the choices your prospects make by what you say and do to address these underlying psychological factors.
Research has identified a number of specific principles of behavioral economics that help explain the buyer’s thought process in deciding to purchase life insurance. Utilizing these insights can help you create more persuasive and effective presentations – and close more sales. Here are a few key takeaways to consider when meeting with a prospect:
It’s clear that behavioral economics offer a different way of thinking about how and why your clients make their financial decisions. You can adapt your sale approach to incorporate some or all of these principles and insights. You may also find that behavioral economics reinforces methods you intuitively know and already use successfully in working with prospects. Your ability to see and understand the sales process from the client’s point of view will give you an advantage that can translate into a better sales experience for the prospect and for you.
James O. Mitchel, Ph.D., CEBS, vice president and director, LIMRA’s Developmental Research, is responsible for LIMRA’s exploratory research in the United States and Canada focused on new and developing areas within the financial services industry. He also is responsible for research in the affluent market. He can be reached at firstname.lastname@example.org..