What's the most important behavioural bias?

The bias that causes the most problems for consumers?

The bias that has the biggest implications for business models?

There are plenty of contenders: loss aversion; confirmation bias; overconfidence; and so on.

But I’m inclined to agree with those that say the most impactful bias is inertia.

We display inertia when we:

• leave our savings in low rate accounts

• don’t proactively tackle our debts

• don’t shop around for a better insurance policy

Inertia is why new entrants struggle to gain customers, despite offering innovative new products at lower prices.

Inertia is why established brands can sometimes afford to rest on their laurels, safe in the knowledge that many of their customers won’t switch away.

If it wasn’t for inertia, we could throw away quite a lot of regulation

Inertia causes market failures by weakening competition. In fact, inertia is the reason behind many (most?) regulatory interventions over the years.

• The ban on price walking in car and home insurance tried to mitigate the effects of inertia.

• Pensions autoenrollment is effective precisely because it harnesses inertia.

• Targeted support is largely an attempt to overcome inertia.

Having said this, blaming inertia is saying everything and nothing

We observe that consumers are sometimes inert. But we need to know why – and the causes vary.

It’s more accurate to think of inertia as the symptom of behavioural factors, rather than a bias in its own right.

Under the Consumer Duty, providers should be identifying areas where inertia leads to poor customer outcomes, and then trying to tackle inertia.

We don’t need to worry about the ‘actively inert’

From the outside, it might look like a customer is disengaged. But we might not know if the customer is actively choosing to take no action.

I didn’t shop around for home emergency cover when my policy came up for renewal. It’s already a dirt cheap policy, so any savings (probably pennies) wouldn’t be worth my time.

I’ve not switched my main current account for several years. I’m broadly happy with my bank’s service, and the last time I switched it went wrong and was a massive hassle.

In these cases, I’m actively inert. I’m making an informed decision to disengage. There’s no consumer harm here.

However, it’s quite hard to prove that customers are actively inert. And if we don’t know, we might want to work on the assumption that inert consumers are not making informed decisions.

We have limited time and attention budgets

Life is busy and, frankly, full of a lot more interesting stuff than personal finance. We’re fighting for the attention of our customers.

We need all the behavioural science we can get our hands on, to design effective communications that cut through. Succinct, clear, simple, and personalised communications are far more likely to land their message.

Then, once we have their attention, we need to make it easy for consumers to take action.

Too much friction is called a ‘sludge’. Sludges are a very effective way of discouraging action, which is why the FCA is using the Consumer Duty to get providers to conduct sludge audits.

Behavioural science again shows us how to make journeys easy and low friction.

When the journey is low friction overall, we can use moments of high friction to land key messages. For example, checking that customers actually understand a key point about the product they’re buying.

Inertia can be an emotional response

Customers in financial difficulty can feel ashamed or embarrassed. These feelings push us to disengage, which tends to make things worse.

Better providers overcome this emotional context through offering reassurance, using plain language, and by communicating as equals. When people feel in control, they are more likely to act.

One size doesn’t fit all. Different emotional contexts require different approaches.

For example, first-time investors often feel anxiety about losing money. The most effective approach is to offer concrete, jargon-free information about investing returns over the long term. Savers then feel able to make informed decisions and are more likely to invest some of their cash.

Overcoming inertia

Inertia is so prevalent that we almost forget that it is everywhere in financial services. It’s not always a problem, but it often leads to foreseeable harm.

We can overcome a lot of inertia through behavioural science, working within our emotional context. Designing communications that cut through and journeys that make good decisions easy.

Ultimately, we might want to design better products – with products that don’t penalise the inert to benefit the active.