PFS Behavior Management Techniques 3

Question 1

Which psychological principle explains why a client is more motivated to save when contributions are framed as 'not spending' rather than 'investing'?

Accepted Answer

Prospect theory / loss framing

Answer

Prospect theory shows that framing savings as avoiding a loss (not spending) is more motivating than framing it as a gain, because losses loom larger than equivalent gains.

Question 2

The 'Save More Tomorrow' (SMarT) program by Thaler and Benartzi is effective primarily because it leverages:

Accepted Answer

Pre-commitment and loss aversion by allocating future raises to savings

Answer

SMarT works by having employees commit in advance to directing future pay raises toward retirement savings, using pre-commitment to overcome present bias while avoiding the pain of an immediate income reduction.

Question 3

A client panics and calls to sell all equity holdings during a market correction. The MOST appropriate behavior management response is to:

Accepted Answer

Review the written Investment Policy Statement together and remind the client of agreed-upon goals

Answer

Reviewing the pre-agreed Investment Policy Statement grounds the conversation in rational, long-term goals rather than short-term emotional reactions.

Question 4

Which behavioral concept describes the tendency for people to value an item more highly simply because they own it?

Accepted Answer

Endowment effect

Answer

The endowment effect causes people to demand more to give up something they own than they would pay to acquire the same item, often leading to over-concentration in employer stock.

Question 5

Which of the following BEST describes 'nudge theory' as applied to personal financial planning?

Accepted Answer

Designing choice environments so the default option promotes better financial outcomes

Answer

Nudge theory involves structuring the choice environment (architecture) so that the default or easiest option promotes beneficial outcomes, without restricting freedom of choice.

(PFS) Personal Financial Specialist Practice Test

(PFS) Personal Financial Specialist Practice Test

PFS Behavior Management Techniques 3