People are not perfectly rational decision-makers.
Behavioural economics documents systematic ways that real decisions depart from the assumptions of purely rational models.
RESEARCH
Built on research. Designed for the conversation.
AwareFi brings together established work in behavioural economics, investor psychology, risk profiling and financial decision-making to help advisors understand the person behind the portfolio.
EVIDENCE, NOT A BLACK BOX
Published research informs the framework. AwareFi's own scoring, interpretation and product design remain distinct and subject to ongoing validation.
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THE RESEARCH PRINCIPLE
Investors do not make financial decisions with numbers alone.
Risk decisions are shaped by capacity, tolerance, experience, knowledge, emotion, confidence and predictable behavioural tendencies. A useful assessment should make those dimensions easier to discuss rather than collapse them into one unexplained score.
FOUNDATIONS
The ideas underneath the assessment.
AwareFi draws from several established areas of research. They answer different questions, and keeping those questions separate is part of the design.
Ability to take risk is not the same as willingness to take it.
Financial circumstances and psychological tolerance describe different dimensions of an investor's relationship with risk.
Behaviour under pressure can differ from stated intentions.
Confidence, emotion, prior experience and market conditions can influence how an investor reacts when decisions become real.
Understanding changes the quality of a financial decision.
Knowledge and financial literacy matter because a client's ability to interpret risk affects the conversation around the choices in front of them.
BEHAVIOURAL ECONOMICS
A different model of human decisions.
Work associated with Daniel Kahneman and Amos Tversky helped establish that decisions under uncertainty are shaped by predictable psychological effects rather than by calculation alone.
Prospect theory became one of the important foundations for understanding why gains and losses may not be experienced symmetrically, and why the framing of a choice can matter.
CANADIAN CONTEXT
The investor experience matters here too.
Canadian investor research provides local context for how knowledge, confidence, behaviour and advice interact in real financial decisions.
OSC
Ontario Securities Commission
Investor research
Research should connect to the environment advisors and investors actually operate in.
Canadian studies of investor knowledge, attitudes and behaviour help ground the broader academic literature in the realities of Canadian households.
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Investor knowledge and confidence are related, but they are not interchangeable.
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Behaviour and decision-making deserve attention alongside financial facts.
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Good advice depends on understanding the client well enough to make risk meaningful.
BEHAVIOURAL TRAITS
Research becomes a better question.
The goal is not to diagnose a client. It is to surface tendencies that can improve the advisor-client conversation.
RESEARCH AREA
WHAT IT CAN SURFACE
ADVISOR CONVERSATION
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Loss aversion
Sensitivity to losses and the possibility that avoiding a loss may carry more weight than pursuing an equivalent gain.
How might this client experience a market decline, and what support would help them remain aligned with the plan?
02
Overconfidence
The possibility that confidence in one's judgement can exceed the information or evidence supporting it.
Where should conviction be tested before it becomes an investment decision?
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Herding
A tendency for the behaviour or opinions of other people to influence an individual's own financial choices.
How vulnerable is this client to changing course because everyone else appears to be doing something different?
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Present bias
A tendency to give disproportionate weight to immediate outcomes relative to future consequences.
Where might short-term comfort compete with a longer-term financial objective?
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Familiarity
A preference for investments, companies or ideas that feel known or recognizable.
Is familiarity being mistaken for safety or influencing diversification decisions?
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Anchoring
A tendency for an initial number, price or reference point to influence later judgement.
Which reference points may be shaping the client's expectations today?
RISK IS MULTIDIMENSIONAL
Can take risk. Will take risk.
Those are different questions. A client's financial ability to withstand loss can be very different from their psychological willingness to experience it.
Treating capacity and tolerance separately makes disagreement between them visible instead of hiding it inside a blended score.
- Time horizon
- Liquidity needs
- Financial resources
- Ability to absorb loss
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- Comfort with volatility
- Emotional response
- Risk preference
- Behaviour under stress
AN IMPORTANT DISTINCTION
What the research says. What AwareFi builds.
Published research provides foundations and evidence. It does not automatically validate every product, score or interpretation built from those ideas.
ESTABLISHED RESEARCH
External evidence
The foundation
- Behavioural economics and decision science
- Research into judgement under uncertainty
- Financial literacy and investor knowledge
- Distinctions between financial capacity and psychological tolerance
- Documented behavioural tendencies that can affect financial decisions
AWAREFI
Product framework
The implementation
- The specific AwareFi question bank
- Deterministic scoring rules and gates
- Behavioural trait interpretation
- AwareFi ranges, personas and advisor presentation
- Ongoing internal and external validation of the complete assessment framework
THE STANDARD
We should be precise about the difference: research can support the concepts underneath a framework without independently validating every conclusion produced by that framework.
SELECTED REFERENCES
Go to the source.
A selection of the academic and institutional work informing the research foundations described on this page.
Kahneman, D. & Tversky, A.
Prospect Theory: An Analysis of Decision under Risk.
Econometrica · 1979
Tversky, A. & Kahneman, D.
The Framing of Decisions and the Psychology of Choice.
Science · 1981
Kahneman, D.
Maps of Bounded Rationality: Psychology for Behavioral Economics.
American Economic Review · 2003
Lusardi, A. & Mitchell, O. S.
The Economic Importance of Financial Literacy: Theory and Evidence.
Journal of Economic Literature · 2014
Barber, B. M. & Odean, T.
Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment.
Quarterly Journal of Economics · 2001
Ontario Securities Commission
Investor-focused research on financial knowledge, attitudes, experience and behaviour in Canada.
Canadian investor researchThis page describes research foundations and the design rationale behind AwareFi. References do not imply endorsement of AwareFi by the authors, publishers or institutions listed.
FROM RESEARCH TO PRACTICE
Better evidence. Better conversations.
The purpose of the research is not to make the advisor disappear behind a model. It is to give the advisor a clearer starting point for the conversation that judgement still has to finish.