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Judging Versus Perceiving Tendencies and Financial Decision-Making

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

Justin A. Reckers and Robert A. Simon, 10/03/2012

In our past few articles, we have spent considerable time drilling down on the first three continua of personality and psychological preferences that underlie the Myers-Briggs Type indicator.

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

The final leg of the continua, Judging v. Perceiving, will be the focus for this month's article.

An individual's personality will give us vital guidance to the client's psychological needs, behavioral patterns, and the way in which the individual's emotions interact with and interrupt financial decision-making. So far we have covered the Extroversion vs. Introversion continua, the Sensing vs. Intuition continua, and the Thinking vs. Feeling continua. We offered observations for both sides of the continua and uncovered some common biases and barriers that advisors might encounter on the way to economically rational decision-making.

This month we take on the last leg of the Myers-Briggs Type indicator and discuss the Judging vs. Perceiving preference. This overview will help you, as an advisor: 1) recognize which side of the ledger your clients occupy and 2) formulate a plan to best work with them and the specific behavioral and cognitive biases they may bring into their financial decision-making.

In previous articles, we gave a brief description of the Judging individual juxtaposed with the Perceiving counterpart and offered 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 Judging or Perceiving preference gives advisors two huge pieces of information about how best to work with them. Stated very simplistically:

1) The Judging individual prefers a more rigid and structured life and will focus on making decisions when asked to. He or she may even jump to conclusions before the time has come.

2) The Perceiving counterpart would be expected to be more flexible. He or she prefers to take in information rather than focus on making decisions, which makes them more open to guidance. It also makes them more likely to over-analyze.

Clients are mostly Judging or Perceiving but are likely to still have traits of the other. This Myers-Briggs type pair refers only to the personality preference an individual "extraverts" and acts out in the outside world. This is where dissonance can occur, because it is very possible for a client to be very orderly and focused on the inside yet appear spontaneous to the outside world. So although we will discuss them as two separate categories for the purposes of contrast, it would not be accurate to pigeonhole individuals into one classification or the other. Advisors must also avoid the misnomer that a Judging person must be organized and structured and a Perceiving person must be disorganized.

Judging individuals approach life in a structured and organized way, preferring to be quick and clear about their decision-making process and ultimately their decisions. You may find Judging personalities to be among the most self-disciplined of your clients. They will be specific in their goals and get a feeling of control from being the leader of their environment. This "need to lead" can result in making decisions early and often, with expectations that others will follow their lead.

Following are some brief descriptions of observations common in Judging clients that can help an advisor recognize their personality preferences.

Observations of a Judging Client

--Needs to be shown progress
--Is good with baby-step decision-making processes
--Works well with deadlines
--May be seen as rigid
--Likes organization
--Hates waiting for others
--Makes lists
--Is likely to be drawn to project management or logistics as a vocation

We believe Judging individuals are inclined to exhibit active, cognitive biases thanks to their preference for logically oriented time lines and structured decision-making.

Following are some behavioral finance biases we believe should be expected in Judging personalities:

Confirmation and overconfidence bias. Our judging clients are well informed and well prepared. They make lists and devise plans of attack far in advance. Because of this, they can often be over-prepared or think they know the outcome before the meeting. During the actual decision-making process, they may have a tendency to search for or interpret information in a way that confirms their preconceptions. After all, they are well prepared, they know exactly how the meeting will go, and taking a step off of that path is upsetting. This is why others may call them rigid.

Focusing effect. Our Judging clients are very prone to the focusing effect as they will always focus on completion. They like decisions made and they like them made now. Their focus will be on completing the task at hand and may miss the bigger picture in that endeavor. This causes errors in judgment when they miss other external information, such as emotional issues and the opinions of others. They may have trouble understanding why others do not problem-solve the way they do.

Unit bias. Judging clients want to get their work done before they have their play time. Unit bias is the tendency for our clients to want to finish a given unit of a task or an item. This bias can easily lead them to make hasty decisions despite their reputation as a structured and organized person. It may also lead them to lose sight of the forest in their attempt to fell an individual tree.

Perceiving individuals find structure to be repressive and restricting. They prefer to take in all available information and to keep their options open. Their sense of control comes from the comfort that they can always change their minds. These are the types who need their advisor to document everything and commit agreements to writing. They like the brainstorm but not the elimination of bad options.

Following are some brief descriptions of observations common in Perceiving clients that can help an advisor recognize their personality preferences.

Observations of a Perceiving Client

--Is flexible and adaptable
--Is creative
--Seeks knowledge
--May be prone to procrastination
--Needs time and may not work well on deadlines
--Open to new experiences and ideas
--Doesn't like planning functions
--Works in bursts of energy

We believe Perceiving clients may be more inclined to passive cognitive biases. Following are some behavioral finance biases we believe to be common in Perceiving personalities:

Inertia. Perceiving clients can be very focused on taking in new information--so much so that they will diminish the value of certain information in the interest of getting more. Missing the value of certain inputs can lead Perceiving clients to miss deadlines for making decisions.

Planning fallacy. Perceiving clients may suffer from planning fallacy because they underestimate the time necessary to complete important tasks. They might show up unprepared for meetings, even meetings with strict agendas and various reminders. They like to adapt to the world as it comes at them rather than organize it beforehand.

This article concludes our look at personality types and leads us into a more focused, in-depth round of articles where we will look at specific decision-making processes we have helped clients undertake. Next month we will look at some divorce cases from our practices, before moving on to discussing joint decision-making with couples. Divorce is the largest financial decision in most people's lives and is set amid one of the most emotionally chaotic times an individual can experience, so hold on to your seat on the behavioral finance rollercoaster.

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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