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Sensing Versus Intuitive Clients and Their Financial Decision-Making

Determining if a client is more aligned with the sensing or intuition preference gives advisors two huge pieces of information about how best to work with them.

Justin A. Reckers and Robert A. Simon, 07/23/2012

In our last couple of articles, we began drilling down on the four continua of personality and psychological preferences that underlie the Myers-Briggs Type Indicator.

--Extraversion v. Introversion
--Sensing v. Intuition
--Thinking v. Feeling
--Judging v. Perceiving

An individual's personality will give us vital guidance into that client's psychological needs, behavioral patterns, and the way in which emotions interact with and interrupt financial decision-making.

Last month we reviewed the Extroversion vs. Introversion continua. We offered observations of both extroverts and introverts and uncovered some common biases and barriers they might encounter on the way to economically rational decision-making.

This month we take on the next leg of the Myers-Briggs Type Indicator and discuss the Sensing vs. Intuition preference. This overview will help you as an advisor to recognize which side of the ledger your clients occupy and give some ideas as to how you can best work with them and the specific behavioral and cognitive biases they may bring into their financial decision-making.

In previous articles we briefly outlined the "sensing" individual juxtaposed with the "intuitive" counterpart and gave a ten-thousand-foot view of their communication styles and tendencies toward certain economically irrational thought processes. Determining if a client is more aligned with the sensing or intuition preference gives advisors two huge pieces of information about how best to work with them. 

1) How do they learn?
2) How do they perceive the future?

Clients are mostly sensing or intuitive but are likely to still have traits of the other. So it would not be accurate to pigeonhole individuals into one classification. However, we will discuss them as two separate categories for purposes of contrast.

Sensing
Sensing individuals are attentive and immersed in the sensory intake from every environment they encounter. The individual exhibiting the psychological preferences of a sensing personality will use quotes like "live for today," "here and now," and "bottom line."

Following are some brief descriptions of observations common in sensing clients that can help an advisor recognize an extroverted personality.

Observations of a Sensing Client
--Detail oriented
--Takes mental pictures
--Remembers events based on literal experience
--Concerned with the present
--Occupied by what is actual and tangible
--Trusting of experience
--Pragmatic
--Learns from practical application

We believe sensing individuals to be inclined to exhibit more passive biases. Following are some behavioral finance biases we believe should be expected in sensing personalities along with brief descriptions. The three biases below are different but interrelated, as you will see from the explanations:

Status Quo Bias: Sensing clients are concerned with the present, the here and now, and will have trouble committing to a deliberate conceptualization of the future. Because of this concern for the present, they will exhibit a bias toward the status quo and an aversion to change.

Aversion to Ambiguity: Sensing clients are occupied by what is actual and tangible, and just as they have an aversion to change, they have an aversion to the future. They are preoccupied with understanding the present and sensing the effect of the forces around them in a given moment. They require the details and the availability of current information, so the ambiguity represented by the future may cause them to withdrawal.

Inertia: Sensing client can be very detail oriented and pay so much attention to the current facts that they miss new and different possibilities, which can lead to inertia. The preference for the status quo combined with the heightened awareness of current tangible details will cause the sensing client to miss opportunities for progress.

Intuition
Intuitive individuals are likely to be more future oriented and more capable of conceptualizing what might be possible. They will also be more skeptical of the future and always be calculating different angles and reading between the lines.

Observations of an Intuitive Client
--Remembers events based on an impression of the experience
--Constantly tries to read between the lines
--Learns by thinking through every angle
--Adventurous
--Trusts gut feelings
--Day dreamer
--Can be scatter-brained, jumping from one place to the other
--Thinks more of the future than the past

We believe intuitive clients may be more inclined to exhibit active biases. Following are some behavioral finance biases we believe to be common in intuitive personalities, with brief descriptions.

Analysis Paralysis: Intuitive individuals are always seeking deeper meanings in situations. In divorce negotiations, for instance, we commonly see intuitive clients balk at financial settlements offered them without consideration. The common reasoning is, "if my former spouse is offering it to me, it must not be a good deal." The intuitive client may look for hidden meanings and wind up allowing a feeling that things are too good to be true hijack decision-making.

Framing Effect: Intuitive people remember events and learn based on impressions. In the case of a memorable event, they may associate a feeling or a thought they had in the middle of the memory. They are constantly looking at all angles and seeking a different frame of reference for the memory or the learning experience. Because of this, they may be prone to framing effect or the tendency for people to draw different conclusions based on how data is presented. This includes the tendency to ignore that a solution exists, because the source is seen as an "enemy" or as "inferior" (see above).

Optimism Bias: Because intuitive individuals tend to trust their gut feelings, they may believe they are less at risk of experiencing a negative outcome. They simply believe the gut feeling they have based on their own knowledge and experience is the best resource to rely upon--which can lead to unrealistic optimism.

Next month we will have a more in-depth discussion and application of the Thinking vs. Feeling leg of the Myers-Briggs continua.

Justin A. Reckers, CFP, CDFA, AIF is director of financial planning at Pacific Wealth Management www.pacwealth.com and managing director of Pacific Divorce Management, LLC www.pacdivorce.com, in San Diego.

Robert A. Simon, Ph.D. www.dr-simon.com is a forensic psychologist, trial consultant, expert witness, and alternative dispute resolution specialist based in Del Mar, Calif.

The author is a freelance contributor to MorningstarAdvisor.com. The views expressed in this article may or may not reflect the views of Morningstar.
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