Behavioral finance research may be in its infancy due to its controversial nature. Businesses want to determine the methods on which individuals identify the need to purchase a product or service but on the opposite end of the spectrum, leveraging that type of information can lead to bad reviews of the business practices. One would think that all financial decisions are rational, but when it comes to behavioral finance, sometimes the decisions may be predetermined by your genetics. This paper analyzes these behaviors related to deoxyribonucleic acid (DNA) genetics, conspicuous consumption and financial self-control. While financial self-control may not be directly related to genetics, the literacy that one gains throughout their life is usually one of an inherited nature which if mismanaged can lead to costly behaviors. When quantifying the research for this topic there were only about four-thousand business articles relating to behavioral finance in the past five years and only a small fraction of those relating to genetics or inherited behaviors.
When reviewing genetic specific relationships to our purchase habits and DNA, current research has found that one-fifth of an individual’s risk versus reward habits are based on genetics (Lehrer & Ding, 2017). While the genes do not directly tell one to buy something the action of the purchase activates parts of the brain responsible for the release of dopamine. This is the same area of the brain that is responsible for addictions to certain substances and other behaviors. The opposite is true for individuals that observe an overly priced item. This observation activates sections of the brain responsible for identifying pain. While these reactions may seem straight forward, the research one these cause-and-effects has been minimal. This may be due to the above-mentioned controversial topics or the fairly minimal availability of DNA based science until the past century.
Conspicuous consumption is derived from the fact that some people spend more when they witness other people’s purchasing habits. These habits are based on increased disposable income and the illusion that high end items are essential (Lewis & Moital, 2016). This type of behavior can be the result of the need for self-esteem boosts or the psychological need of attachment to material possessions, both of which can be genetically related. While the study by Lewis & Moital is limited to clothing purchases this type of behavior can be seen widely across different categories. Examples include individuals shopping at fancy coffee chains so they can carry the branded paper cup into the workplace and individuals jockeying to purchase the latest pair of all-star athletes’ sneakers rather than an off the shelf shoe that may meet their needs. These types of actions lead to the next behavior that is studied regarding financial self-control.
Ultimately the largest study reviewed encompassed the fact that youth generally have low financial sophistication (Ghent & Kudlyak, 2015) which is unlikely to develop as they move into their middle-aged years but may further develop as they age into retirement (Lewis & Moital, 2016). Ghent’s focus was on defining the parents’ credit behaviors and determining if those carried over the children’s results. This basis confirms the one-third genetic relevance but also interjects financial literacy, formal education, economic and market conditions. The study goes on to find that these have little power to overcome the genetic link but the tools are improving. These discoveries encompassed with DNA and psychological need set a clear necessity for further research.
What has been researched that further contributes to these areas?
Much of the DNA specific research regarding financial behaviors has only been conducted in the past decade. While more widely based behavioral finance and economics is still only about 20 years old (Lehrer & Ding, 2017). This goes back to the controversy of the academic interpretation of the data and how research has historically been criticized. However, with the increase in DNA testing and readily available data samples from DNA collection vendors such as mail in genetic testing websites this stigma may be minimized in the near future. Lehrer & Ding go on to state that with such affordable technologies it would be rash for researchers to ignore this information when it is a new unique dataset for identification of trends and patterns.
Studies related to conspicuous consumption and genetics have risen from approximately 1,000 per year to approximately 5,000 per year based on library catalog searches. This is likely the result of the rise in online shopping and the need to understand a consumer’s behavioral patterns. As the Lewis & Moita study was limited to clothing, it would be beneficial for research in the online marketplace especially in the wake of the 2020 Coronavirus which led to a boom in online shopping. This trend of competing with what your neighbor has in conjunction with the current state of the U.S. economy lends much to be learned by researchers and economists.
References
Ghent, A. C., & Kudlyak, M. (2015). Intergenerational linkages in household credit. Federal
Reserve Bank of Richmond. Working Paper Series, 15(14), 1.
Kliger, D., van den Assem, Martijn J, & Zwinkels, R. C. J. (2014). Empirical behavioral
finance. Journal of Economic Behavior and Organization, 107, 421-427.
Lehrer, S. F., & Ding, W. (2017). Are genetic markers of interest for economic
research? IZA Journal of Labor Policy, 6(1), 1-23.
Lewis, A., & Moital, M. (2016). Young professionals’ conspicuous consumption of clothing.
Journal of Fashion Marketing and Management, 20(2), 138-156.
