Abstract
Purpose
In order to better understand how heuristics are used in practice, the authors explore what type of heuristics is used in the managerial domain of financial advisors to small and medium-sized enterprises (SMEs) and what influences the shaping of these heuristics. In doing so, the authors detect possible fast-and-frugal heuristics in day-to-day decision-making of independent financial advisers who help owners of SMEs to acquire capital (e.g. loans, factoring, leasing and equity).
Design/methodology/approach
The authors inductively assessed the work of financial advisers of SMEs. Based on group discussions, the authors drew up a semi-structured interview-protocol with descriptive questions about how financial advisers come to a deal for their clients. The interviews of 19 professionals were analysed by relating them to the theory of fast-and-frugal heuristics.
Findings
Within their decision-making, advisers estimate the likelihood of acceptance by a few financial providers they know well in their personal network with a strong bias towards traditional banking products, although there are a large number of alternatives on the Dutch market. “Less is more” seems to be a relevant principle when defined as satisficing. Heuristics help advisers to deal with behavioural and economic limitations. Also, the authors have found that client interaction, previous working experience and the company the adviser is working for influences the shaping of the simple rules the adviser is using.
Research limitations/implications
The study shows how difficult it is to understand the ecological rationality of a certain group of professionals and to understand the “less is more” principle. Financial advisers to SMEs use cognitive shortcuts and simple rules to advise SME-owners, based on previous experiences, but it is difficult to determine whether that leads to the same or even better solutions for them and their clients than using probability theory and financial optimisation models. Within heuristics, satisficing seems to be a dominant mechanism. Here, heuristics help advisers in recognising possibilities by searching for similarities between a current financing case and previous experiences. The data suggests that if “less is more” is defined as satisficing for one or more stakeholders involved, the principle dominates the decision making of financial advisers of SME's.
Practical implications
The authors suggest the relevance of a behavioural approach to finance by assessing the day-to-day decisions of financial advisers of SMEs. Also, the authors suggest that financial advisers are guided by previous experiences, and they do not fully assess a wide range of options in their work but need shortcuts to fulfil the needs of their clients.
Originality/value
The study comes close to day-to-day decision-making in finance by assessing how professionals make decisions. The authors try to understand types of heuristics in relation with “ecological rationality” and the less is more principle. The authors assess financial advisers of SME-companies, a group that has gotten little research attention until now. The influence of client interaction and of the company the adviser is working for is remarkable in the shaping of the advisers' simple rules.
| Original language | English |
|---|---|
| Pages (from-to) | 1728-1749 |
| Journal | Management Decision |
| Volume | 59 |
| Issue number | 7 |
| DOIs | |
| Publication status | Published - 17 Aug 2021 |
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Rauwerda, K. (2021). Heuristics in financial decision-making: the selection of SME financing by advisers in an increasingly diverse market. Management Decision, 59(7), 1728-1749. https://doi.org/10.1108/MD-09-2019-1269
Rauwerda, Kirsten ; De Graaf, Frank Jan . / Heuristics in financial decision-making: the selection of SME financing by advisers in an increasingly diverse market. In: Management Decision. 2021 ; Vol. 59, No. 7. pp. 1728-1749.
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title = "Heuristics in financial decision-making: the selection of SME financing by advisers in an increasingly diverse market",
abstract = "PurposeIn order to better understand how heuristics are used in practice, the authors explore what type of heuristics is used in the managerial domain of financial advisors to small and medium-sized enterprises (SMEs) and what influences the shaping of these heuristics. In doing so, the authors detect possible fast-and-frugal heuristics in day-to-day decision-making of independent financial advisers who help owners of SMEs to acquire capital (e.g. loans, factoring, leasing and equity).Design/methodology/approachThe authors inductively assessed the work of financial advisers of SMEs. Based on group discussions, the authors drew up a semi-structured interview-protocol with descriptive questions about how financial advisers come to a deal for their clients. The interviews of 19 professionals were analysed by relating them to the theory of fast-and-frugal heuristics.FindingsWithin their decision-making, advisers estimate the likelihood of acceptance by a few financial providers they know well in their personal network with a strong bias towards traditional banking products, although there are a large number of alternatives on the Dutch market. “Less is more” seems to be a relevant principle when defined as satisficing. Heuristics help advisers to deal with behavioural and economic limitations. Also, the authors have found that client interaction, previous working experience and the company the adviser is working for influences the shaping of the simple rules the adviser is using.Research limitations/implicationsThe study shows how difficult it is to understand the ecological rationality of a certain group of professionals and to understand the “less is more” principle. Financial advisers to SMEs use cognitive shortcuts and simple rules to advise SME-owners, based on previous experiences, but it is difficult to determine whether that leads to the same or even better solutions for them and their clients than using probability theory and financial optimisation models. Within heuristics, satisficing seems to be a dominant mechanism. Here, heuristics help advisers in recognising possibilities by searching for similarities between a current financing case and previous experiences. The data suggests that if “less is more” is defined as satisficing for one or more stakeholders involved, the principle dominates the decision making of financial advisers of SME's.Practical implicationsThe authors suggest the relevance of a behavioural approach to finance by assessing the day-to-day decisions of financial advisers of SMEs. Also, the authors suggest that financial advisers are guided by previous experiences, and they do not fully assess a wide range of options in their work but need shortcuts to fulfil the needs of their clients.Originality/valueThe study comes close to day-to-day decision-making in finance by assessing how professionals make decisions. The authors try to understand types of heuristics in relation with “ecological rationality” and the less is more principle. The authors assess financial advisers of SME-companies, a group that has gotten little research attention until now. The influence of client interaction and of the company the adviser is working for is remarkable in the shaping of the advisers' simple rules.",
keywords = "Decision-making, Heuristics, SME-finance, Satisficing",
author = "Kirsten Rauwerda and {De Graaf}, {Frank Jan}",
note = "With supplementary file. Funding Information: The authors would like to acknowledge the editors and the anonymous reviewers for their constructive feedback and his colleagues Jamal Abid and Lex van Teeffelen for their work within this research project. The research is (partly) funded by the Dutch Research Council/SIA Raak, project “Naar MKB-advies over gestapeld financieren”. Publisher Copyright: {\textcopyright} 2021, Emerald Publishing Limited.",
year = "2021",
month = aug,
day = "17",
doi = "10.1108/MD-09-2019-1269",
language = "English",
volume = "59",
pages = "1728--1749",
journal = "Management Decision",
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Rauwerda, K 2021, 'Heuristics in financial decision-making: the selection of SME financing by advisers in an increasingly diverse market', Management Decision, vol. 59, no. 7, pp. 1728-1749. https://doi.org/10.1108/MD-09-2019-1269
Heuristics in financial decision-making: the selection of SME financing by advisers in an increasingly diverse market. / Rauwerda, Kirsten; De Graaf, Frank Jan .
In: Management Decision, Vol. 59, No. 7, 17.08.2021, p. 1728-1749.
Research output: Contribution to journal › Article › Academic › peer-review
TY - JOUR
T1 - Heuristics in financial decision-making: the selection of SME financing by advisers in an increasingly diverse market
AU - Rauwerda, Kirsten
AU - De Graaf, Frank Jan
N1 - With supplementary file. Funding Information:The authors would like to acknowledge the editors and the anonymous reviewers for their constructive feedback and his colleagues Jamal Abid and Lex van Teeffelen for their work within this research project. The research is (partly) funded by the Dutch Research Council/SIA Raak, project “Naar MKB-advies over gestapeld financieren”.Publisher Copyright:© 2021, Emerald Publishing Limited.
PY - 2021/8/17
Y1 - 2021/8/17
N2 - PurposeIn order to better understand how heuristics are used in practice, the authors explore what type of heuristics is used in the managerial domain of financial advisors to small and medium-sized enterprises (SMEs) and what influences the shaping of these heuristics. In doing so, the authors detect possible fast-and-frugal heuristics in day-to-day decision-making of independent financial advisers who help owners of SMEs to acquire capital (e.g. loans, factoring, leasing and equity).Design/methodology/approachThe authors inductively assessed the work of financial advisers of SMEs. Based on group discussions, the authors drew up a semi-structured interview-protocol with descriptive questions about how financial advisers come to a deal for their clients. The interviews of 19 professionals were analysed by relating them to the theory of fast-and-frugal heuristics.FindingsWithin their decision-making, advisers estimate the likelihood of acceptance by a few financial providers they know well in their personal network with a strong bias towards traditional banking products, although there are a large number of alternatives on the Dutch market. “Less is more” seems to be a relevant principle when defined as satisficing. Heuristics help advisers to deal with behavioural and economic limitations. Also, the authors have found that client interaction, previous working experience and the company the adviser is working for influences the shaping of the simple rules the adviser is using.Research limitations/implicationsThe study shows how difficult it is to understand the ecological rationality of a certain group of professionals and to understand the “less is more” principle. Financial advisers to SMEs use cognitive shortcuts and simple rules to advise SME-owners, based on previous experiences, but it is difficult to determine whether that leads to the same or even better solutions for them and their clients than using probability theory and financial optimisation models. Within heuristics, satisficing seems to be a dominant mechanism. Here, heuristics help advisers in recognising possibilities by searching for similarities between a current financing case and previous experiences. The data suggests that if “less is more” is defined as satisficing for one or more stakeholders involved, the principle dominates the decision making of financial advisers of SME's.Practical implicationsThe authors suggest the relevance of a behavioural approach to finance by assessing the day-to-day decisions of financial advisers of SMEs. Also, the authors suggest that financial advisers are guided by previous experiences, and they do not fully assess a wide range of options in their work but need shortcuts to fulfil the needs of their clients.Originality/valueThe study comes close to day-to-day decision-making in finance by assessing how professionals make decisions. The authors try to understand types of heuristics in relation with “ecological rationality” and the less is more principle. The authors assess financial advisers of SME-companies, a group that has gotten little research attention until now. The influence of client interaction and of the company the adviser is working for is remarkable in the shaping of the advisers' simple rules.
AB - PurposeIn order to better understand how heuristics are used in practice, the authors explore what type of heuristics is used in the managerial domain of financial advisors to small and medium-sized enterprises (SMEs) and what influences the shaping of these heuristics. In doing so, the authors detect possible fast-and-frugal heuristics in day-to-day decision-making of independent financial advisers who help owners of SMEs to acquire capital (e.g. loans, factoring, leasing and equity).Design/methodology/approachThe authors inductively assessed the work of financial advisers of SMEs. Based on group discussions, the authors drew up a semi-structured interview-protocol with descriptive questions about how financial advisers come to a deal for their clients. The interviews of 19 professionals were analysed by relating them to the theory of fast-and-frugal heuristics.FindingsWithin their decision-making, advisers estimate the likelihood of acceptance by a few financial providers they know well in their personal network with a strong bias towards traditional banking products, although there are a large number of alternatives on the Dutch market. “Less is more” seems to be a relevant principle when defined as satisficing. Heuristics help advisers to deal with behavioural and economic limitations. Also, the authors have found that client interaction, previous working experience and the company the adviser is working for influences the shaping of the simple rules the adviser is using.Research limitations/implicationsThe study shows how difficult it is to understand the ecological rationality of a certain group of professionals and to understand the “less is more” principle. Financial advisers to SMEs use cognitive shortcuts and simple rules to advise SME-owners, based on previous experiences, but it is difficult to determine whether that leads to the same or even better solutions for them and their clients than using probability theory and financial optimisation models. Within heuristics, satisficing seems to be a dominant mechanism. Here, heuristics help advisers in recognising possibilities by searching for similarities between a current financing case and previous experiences. The data suggests that if “less is more” is defined as satisficing for one or more stakeholders involved, the principle dominates the decision making of financial advisers of SME's.Practical implicationsThe authors suggest the relevance of a behavioural approach to finance by assessing the day-to-day decisions of financial advisers of SMEs. Also, the authors suggest that financial advisers are guided by previous experiences, and they do not fully assess a wide range of options in their work but need shortcuts to fulfil the needs of their clients.Originality/valueThe study comes close to day-to-day decision-making in finance by assessing how professionals make decisions. The authors try to understand types of heuristics in relation with “ecological rationality” and the less is more principle. The authors assess financial advisers of SME-companies, a group that has gotten little research attention until now. The influence of client interaction and of the company the adviser is working for is remarkable in the shaping of the advisers' simple rules.
KW - Decision-making
KW - Heuristics
KW - SME-finance
KW - Satisficing
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U2 - 10.1108/MD-09-2019-1269
DO - 10.1108/MD-09-2019-1269
M3 - Article
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VL - 59
SP - 1728
EP - 1749
JO - Management Decision
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Rauwerda K, De Graaf FJ. Heuristics in financial decision-making: the selection of SME financing by advisers in an increasingly diverse market. Management Decision. 2021 Aug 17;59(7):1728-1749. doi: 10.1108/MD-09-2019-1269
I'm an expert in the field of financial decision-making, particularly focused on the application of heuristics in the managerial domain of financial advisors for small and medium-sized enterprises (SMEs). My expertise is demonstrated through a deep understanding of the concepts discussed in the article titled "Heuristics in financial decision-making: the selection of SME financing by advisers in an increasingly diverse market," authored by Kirsten Rauwerda and Frank Jan De Graaf.
The study aims to better understand how heuristics are practically employed by financial advisors to SMEs and explores the influences shaping these heuristics. The authors use an inductive approach, assessing the work of financial advisers through group discussions and semi-structured interviews. They focus on detecting fast-and-frugal heuristics in the day-to-day decision-making of independent financial advisers assisting SME owners in acquiring capital.
The findings reveal that advisers often estimate the likelihood of acceptance by a few familiar financial providers in their personal network, showing a bias towards traditional banking products despite the existence of numerous alternatives in the Dutch market. The principle of "less is more" is identified as relevant when defined as satisficing, and heuristics aid advisers in dealing with behavioral and economic limitations. The study highlights the impact of client interaction, previous working experience, and the company the adviser works for in shaping the simple rules they employ.
Despite the dominance of satisficing within heuristics, the study acknowledges the difficulty in understanding the ecological rationality of financial advisers and determining whether their cognitive shortcuts and simple rules lead to optimal solutions for SME clients compared to probability theory and financial optimization models.
The practical implications of the research suggest the importance of a behavioral approach to finance, emphasizing the day-to-day decisions of financial advisers for SMEs. The authors argue that advisers rely on previous experiences and use shortcuts to fulfill the needs of their clients, suggesting that a wide range of options may not always be fully assessed in their work.
This study contributes significantly to understanding the decision-making processes in finance by closely examining how professionals, specifically financial advisers to SMEs, make decisions. The emphasis on heuristics, ecological rationality, and the "less is more" principle adds valuable insights to the field.
For more detailed information, you can refer to the original article published in the Management Decision journal, Volume 59, Issue 7, dated August 17, 2021, with the DOI: .
