The concept of nudge, defined as “liberty-preserving approaches that steer people in particular directions, but that also allow them to their own way” (Sunstein 2014), has been applied to different areas of people’s lives, including consumer, health, energy, and civic behavior (e.g., Halpern 2018; Momsen and Stoerk 2014), but principally economics (Thaler and Sunstein 2008). It has become very popular in the last few decades in both private and public institutions and in several countries, such as the US, Australia, Canada, the UK, and others in Europe. Different types of nudges with beneficial effects have been identified (e.g., default rules, simplification, uses of social norms, increases in ease and convenience; see Sunstein 2014 for a list of the most important nudges), and the number is constantly growing (for a review, see Szaszi et al. 2018). Among them, default rules are the most effective and well-known type of nudges; it has been shown, for example, that automatically depositing a share of one’s salary into a savings account (which you can close without any cost) increases employees’ adherence to savings plans (Benartzi and Thaler 2004). Simplification is another form of nudge that involves promoting existing programs, involving education, health, finance, and so on, by reducing their complexity. Informing people that the majority of their peers are engaged in a certain type of behavior is also a type of nudge. Indeed, emphasizing what most people do usually creates a social norm that individuals tend to follow. Making healthy food more visible to consumers is an example of a nudge based on the increased ease and convenience of product availability. For example, clearly displaying fruit and vegetables in a campus coffee shop increases their consumption by students, and consequently reducing their intake of unhealthy foods (Wansink et al. 2013).
Many large US firms have adopted different types of nudges to increase employee participation in savings programs. An example of this was the White House Social and Behavioral Sciences Team, which was active from 2015 to 2017 and was composed of a group of behavioral science experts. The goal of this team was to improve federal policies and programs, with nudge methods to support people in several fields, such as encouraging them to invest their savings in retirement plans. In the UK, the Behavioral Insights Team has applied nudging in public policy since 2010 and the European Commission has realized several studies since 2008 to examine the facilitating effect of nudges in several fields of application, such as Internet behavior, energy saving, investment decisions, and so on (e.g., Brenninkmeijer and Blonk 2012; Foukaras and Toma 2014).
Default options are one of the most effective types of nudges, and they refer to the events or conditions set in place when no alternatives are actively chosen. The impact of default rules has been shown by automatic enrollment plans wherein governments, companies and public agencies randomly assign people to an institutional program, then give them the chance to change from this default condition to one of various alternatives, including health care plans (Samuelson and Zeckhauser 1988), influenza vaccination (Chapman et al. 2010), and savings plans (Benartzi and Thaler 2013). A classic example is the introduction of presumed or deemed consent for organ donation (i.e., opt-out strategy, whereby organ donation occurs automatically unless a specific request is made before death for organs not to be taken) to increase the number of organs available for transplant (Arshad et al. 2019). The literature shows that the majority of people do not change their assigned default program in an opt-out frame, and the percentages of organ donors in countries with an opt-out system are much higher than in countries with an opt-in system, wherein people have to actively sign up to a register to donate their organs after death (Johnson and Goldstein 2003).
Simple forms of default rules have shown strong and stable effects across different cultures and age groups (e.g., Madrian and Shea 2001), as well as in the financial field, in particular savings behaviors (e.g., Choi et al. 2004). For example, Ashraf et al. (2006) show that the default option of a commitment savings account has an impact on both household decision-making power (i.e., the household is more likely to buy durables) and the self-perception of savings behavior (i.e., people with time-inconsistent preferences report being more disciplined savers). Moreover, Madrian and Shea (2001) show that default options can increase participation in retirement plans, from 49 to 86%, among new employees.
The main research area where this effect has been studied is behavioral economics with the underlying theory of libertarian paternalism, the idea that it is both possible and legitimate for private and public institutions to affect behavior while also respecting freedom of choice (Thaler and Sunstein 2003; Camerer et al. 2003). According to behavioral economics, human behavior depends on both the environmental situation in which a decision is taken and the individual preferences of the person who makes the decision (e.g., Mani et al. 2013). Behavioral economics has accumulated a notable body of laboratory and field research (see DellaVigna 2009 for a review), showing that people have a priori ideas about uncertain events and specific preferences that can lead them to troublesome behaviors, such as saving inadequately for retirement or accumulating high credit card debt. These preferences are influenced not only by social norms, the opinions and behaviors of other people (Slovic 1995), and financial literacy (i.e., the knowledge of financial products, e.g., a bond or a stock; the knowledge of financial concepts; and mathematical skills or the numeracy necessary for effective financial decision-making and engagement in certain activities, e.g., financial planning, see Hastings et al. 2013), but also by personality traits (e.g., Gambetti and Giusberti 2019) and emotions (Loewenstein and Lerner 2003). For example, people may have self-control problems; they make long-term savings plans but then they do not always follow through because of the temptation to consume, that is, the intertemporal inconsistency of preferences (Loewenstein and Prelec 1992). Therefore, extensive experimental evidence seems to indicate that people in different areas of their lives are unconscious victims of social influence and cognitive biases because they make decisions by relying excessively on their feelings and emotions (e.g., Rick and Loewenstein 2008). In this regard, individuals are far from rational and often act against their own interests, yet they are quite predictable in their “irrationality” because they show recurring behavioral patterns (e.g., Smelter and Baltes 2001; Ariely et al. 2009). Starting from the assumptions of behavioral economics, libertarian paternalism aims to change the “architecture of choices,” that is, the frame of decision-making to improve individual behaviors while limiting their emotive and cognitive distortions. Notably, Thaler and Sunstein (2008) state that institutions and companies should identify the best possible option and assign people to this condition by default (providing a nudge), leaving them with the possibility to choose from other options, which institutions judge less favorably, however, to improve their living and economic conditions.
The nudge literature recognizes that behavioral change interacts and is modulated by personality (e.g., Ashraf et al. 2006), but there is still little evidence about how specific personality traits and decision-making styles affect individual decision-making under different conditions and rules. This study explores whether a certain type of nudge—default rules (i.e., automatic enrollment in specific plans)—can improve decision-making regarding financial investments. Specifically, default options can help people who are more prone to making unfavorable decisions in the economic field (such as avoiding investments) because of their specific characteristics, such as avoidant and dependent decision-making styles and trait anxiety (e.g., Shih and Ke 2014; Gambetti and Giusberti 2012, 2019). The novelty of this research is its focus on trait anxiety and decision-making styles, which have not been considered in the previous financial literature about nudge. If default rules are found to have an impact on financial decision-making in these individuals, then this further elucidates the potential effect of nudges, thereby allowing financial institutions to guide their clients in a more targeted way depending on their individual differences. For example, the present research could improve financial proposals and questionnaires. A case in point is the Market in Financial Instruments Directive (MiFID), which is a questionnaire introduced by the European Regulator to identify the profile, preferences, and needs of potential investors. The purpose of this questionnaire is to investigate the suitability and appropriateness of each financial product or service proposed to clients. The suitability is a wider concept that may be defined as “the degree to which the product or service offered by the intermediary matches the client’s financial situation, investment objectives, level of risk tolerance, financial need, knowledge and experience” (Bank for International Settlement 2008). Although the MiFID questionnaires provided by major Italian financial groups appear to be largely different, they are usually made up of three sections vis-a-vis financial objectives, financial capacity, and financial experience and knowledge (Marinelli and Mazzolli 2010). The results of the present research can be used to improve this kind of questionnaire by adding a specific section about investor characteristics regarding personality traits and decision-making styles.
Literature review and hypotheses
In the economic field, people tend to make unfavorable financial decisions, not only because they usually have limited self-control over their expenses (e.g., spending more money than they have) and act on the basis of their preferences, but also because they normally have difficulties in understanding financial concepts, including diversification of portfolios and deductible or copayment costs (see Loewenstein et al. 2013; Handel and Kolstad 2015). Moreover, they have limited financial knowledge about their savings and borrowing, such as their mortgages, and usually fail to plan for known expenses, such as college tuition and retirement (Hastings et al. 2013).
In addition to the capability of self-control, as well as financial education and literacy, the variability in financial decision-making can be explained by individual characteristics. Economics is one of the fields wherein the impact of personal characteristics is more evident because of the high uncertainty and consequences that decisions may have on people’s lives (e.g., Donnelly et al. 2012). Research has widely shown the importance of individual differences, such as decision-making styles and personality traits, on individual economic decisions and outcomes (e.g., Muhammad and Abdullah 2009; Riaz et al. 2012; Jamal et al. 2014; Gambetti and Giusberti 2017, 2019).
Regarding personality traits, research shows that people with high introversion, independence, and emotional stability traits are good at saving and avoiding debts, making accurate financial decisions, and incurring low extra expenditures and monetary risks (Chitra and Ramya Sreedevi 2011; Rustichini et al. 2012; Ebrahimi et al. 2016). However, making favorable financial decisions is linked to not only the ability to save money, but also the tendency to invest in different ways (e.g., Lo et al. 2005). Recent research showed that extroversion, self-control, trait anger, and trait anxiety were found to be strong predictors of investment decision-making (e.g., Mayfield et al. 2008; Oehler et al. 2018; Gambetti and Giusberti 2012, 2019). In particular, extroverted and lively individuals who are optimistic and outgoing are likely to take the initiative to spend on high-risk and short-term investments (Nyhus and Webley 2001; Mayfield et al. 2008; Oehler et al. 2017). Moreover, people with high self-control and low impulsivity, who are practical, solution-oriented, and better at managing their money compared to highly neurotic individuals (Donnelly et al. 2012; Webley and Nyhus 2001), are prone to invest in different types of stocks, as well as industrial and state bonds (Gambetti and Giusberti 2019). One the one hand, trait anger is positively associated with the tendency to diversify a portfolio (Gambetti and Giusberti 2012), but on the other, trait anxiety, characterized by high levels of apprehension, tension, and vigilance, predicts over-prudent financial decisions, opting for saving money and not making investments (e.g., Shih and Ke 2014; Gambetti and Giusberti 2019). Thus, trait anxiety is the personality dimension most closely related to the tendency to avoid investments, with the risk of unfavorable financial decisions. Thus, it is selected as independent variable in the present study. Similarly, those suffering from depression are prone to use a risk-averse approach, whereby expected losses are minimized (Leahy et al. 2012). It should also be noted that previous research shows that in the investment field, it is better to study specific personality traits, such as trait anxiety, than personality characteristics at the broadest level of abstraction (Gambetti and Giusberti 2019). The latter may include neuroticism, which covers different personality traits, such as anxiety and anger, that correlate with opposing risk preferences and attitudes and may result in contrasting financial decisions (e.g., Gambetti and Giusberti 2012).
In addition to personality traits, decision-making styles can also predict investment decisions. They are defined as habitual patterns and tendencies in the way an individual approaches and reacts when confronted with a decision-making situation. The number of decision-making styles is subject to debate. On the one hand, Scott and Bruce (1995) suggest that there are five styles: (1) rational (i.e., a tendency to analyze information and not being easily swayed by emotions), (2) intuitive (i.e., a tendency to rely upon intuitions, feelings, and sensations), (3) avoidant (i.e., a proneness to procrastination in making decisions), (4) dependent (i.e., needing the assistance and support of others), and (5) spontaneous (i.e., a tendency to make decisions in an impulsive way). On the other hand, Nygren (2000) identifies three decision-making styles (i.e., analytical, intuitive, regret-based), whereas Leykin and DeRubeis (2010) differentiate among nine styles (i.e., respected, confident, spontaneous, dependent, vigilant, avoidant, brooding, intuitive, anxious).
The five decision-making styles identified by Scott and Bruce (1995) have been correlated with various personality dimensions. For example, Riaz et al. (2012) show that the Big Five personality factors contribute from 15.4 to 28.1% variance in decision-making styles. The authors show that each of the Big Five personality traits (Costa and McCrae 1992) can be mapped onto a specific behavioral decision-making pattern: conscientiousness positively correlates with the rational decision-making style, openness to experience is positively associated with the intuitive decision-making style, extroversion is positively associated with the spontaneous style, agreeableness is positively associated with the dependent decision-making style, and neuroticism is positively related to the avoidant decision-making style. In addition, recent studies have shown that decision-making styles predict decision-making competence, not only in everyday life (Dewberry et al. 2013), but also in the financial field (Cosenza et al. 2019). Specifically, the rational decision-making style mediates the relationship between self-control (i.e., a personality trait associated with conscientiousness and low impulsivity) and investment decisions, and it predicts the ability to manage one’s money effectively (Donnelly et al. 2012; Gambetti and Giusberti 2019; Cosenza et al. 2019). Moreover, rational individuals are more likely to have profitable investments compared to intuitive and spontaneous individuals who are more influenced by emotions and insights, and thus may have problems in managing their money and be more prone to gambling (Muhammad and Abdullah 2009; Jamal et al. 2014). However, avoidant decision-making style predicts the tendency not to invest, not only correlating with trait anxiety but also mediating the relationship between trait anxiety and investment decision-making (Riaz et al. 2012; Gambetti and Giusberti 2019). As we mentioned above, anxious individuals tend to save money and avoid investments, holding interest-bearing accounts owing to their perception of the low predictability of stock trends (Gambetti and Giusberti 2012, 2019). This can be explained by the tendency of anxious individuals to interpret possible negative outcomes as more likely to occur; this tendency leads them to avoid risks, while making excessively prudential decisions (Maner et al. 2007). Thus, anxious and avoidant people are more likely to make unfavorable (i.e., economically disadvantageous) and inefficient (i.e., selecting a course of action in an untimely manner) decisions, leading them to miss profitable financial opportunities (e.g., Lo et al. 2005).
Although a big part of the behavioral/nudge revolution is to acknowledge the heterogeneity of individuals (e.g., Ashraf et al. 2006), no studies have investigated whether using nudges could serve to modulate the influence of trait anxiety and decision-making styles on investment decisions by supporting and improving the decisional process and, thus, reducing unfavorable choices. To fill this gap in the literature, the aim of the present study is to investigate the role of default options in the relationship between trait anxiety, decision-making styles, and intention/preference to invest. As in previous research (e.g., Johnson and Goldstein 2004; Chapman et al. 2010), we define three experimental conditions: (1) “opt-out,” in which it is assumed that participants are enrolled in a specific investment plan by default; (2) “opt-in,” in which it is assumed that participants do not automatically adhere to a specific plan, but they can choose to sign up; and (3) “control,” in which participants have to make a decision to accept or reject an investment proposal. The first two conditions evaluate people’s intentions about investment plans in two different decisional frames (default agreement or default disagreement). The opt-out condition measures the nudge effect, given that participants are pushed by the decisional frame to adhere to the investment plan proposed, whereas the control condition gives information about participants’ preferences regarding each investment plan. We are interested in both intentions and preferences, which are seen as different concepts in the financial field. Intention is the likelihood that an individual makes a particular decision based on their will to do so. For example, the desire to adhere to an investment plan by giving (in opt-in condition) or withholding (in opt-out condition) their consent. However, preference can be viewed as an attitude that influences individuals’ decisions and then results in a behavioral tendency that leads an individual to make a particular choice (Madden et al. 1992; Schiffman et al. 2000). Thus, the control condition can be important to evaluate the preferences of participants with different individual characteristics outside a specific decisional frame.
In general, we expect nudging to have a significant effect on both the intention/preference and conviction to invest. This is suggested by the literature in the financial field, which supposes that people normally make unfavorable investment decisions (e.g., Loewenstein et al. 2013; Handel and Kolstad 2014), and research into the efficacy of nudges (Benartzi and Thaler 2004; Bruns et al. 2018; Johnson and Goldstein 2003). In particular, we hypothesize that:
Hy0 The opt-out condition will differ significantly from the opt-in and control conditions regarding intention/conviction to invest, whereas there will be no significant differences between the opt-in and control conditions.
Regarding individual differences, we hypothesize that default rules might help people with high trait anxiety and avoidant style to improve their economic choices, thereby giving them the nudge to make investments. In particular, default options can support the financial decisions of anxious and avoidant individuals, who usually tend not to invest their money or opt for low-risk investments (e.g., Shih and Ke 2014; Gambetti and Giusberti 2012, 2019), thereby pushing them to make investments. Thus, we propose that:
Hy1 Trait anxiety and avoidant decision-making style will be positively related with investment intentions only in the opt-out condition, and not in the control (in which they can express their preferences about investments) or opt-in conditions (in which they are not pushed by a decisional frame to invest their money).
However, the investment decisions of high rational, intuitive, and spontaneous individuals may be influenced less or not at all by default options. In particular, rational people, who have high self-control and are already prone to invest, thus making profitable and gainful decisions (e.g., Donnelly et al. 2012; Muhammad and Abdullah 2009; Jamal et al. 2014; Gambetti and Giusberti 2019), would choose to invest, regardless of the situation they are in (with or without the presence of default options). Thus, we expect that:
Hy2 No significant differences will be found between the three experimental conditions for rational individuals. We expect them to express their preference for investments (in the control condition) and choose to invest in both opt-in and opt-out conditions.
Conversely, individuals with intuitive and spontaneous decision-making styles, which are positively associated (Scott and Bruce 1995) and prone to making unfavorable financial decisions, such as gambling (Smelter and Baltes 2001), may not be supported by the decisional frame (e.g., default rules) in making investments. This is because they base their financial intentions and decisions on emotions, feelings, and sensations regardless of frame, for example, a default situation (Muhammad and Abdullah 2009; Jamal et al. 2014). Thus, we hypothesize that:
Hy3 Intuitive and spontaneous individuals will express their preference for investing money in the control condition, and they will tend to invest both in opt-in and opt-out conditions because of their sensations, feelings, and emotions regardless of the decisional frame.
Finally, regarding the dependent decision making-style, only a few studies have investigated the relationship between this specific style and financial intentions and decisions, with contrasting results. On the one hand, some studies have shown that people with a high dependent personality trait do usually make unfavorable financial decisions (e.g., Nyhus and Webley 2001; Chitra and Ramya Sreedevi 2011). On the other hand, Gambetti and Giusberti (2019) report that individuals with a dependent decision-making style are prone to invest, thereby making advantageous decisions, probably following the advice of their bank consultants. In this sense, dependent individuals may be supported by nudges and in particular by default options. This can be explained by their tendency to follow pre-established conditions, such as the automatic enrolment in financial plans. We expect this behavior to contrast with that of independent individuals who would not benefit from this type of nudge. Thus, we expect that:
Hy4 Dependent individuals will express their preferences to invest their money in the control condition, but they will make more investment decisions in the opt-out condition than in the opt-in condition.