Analytical Profile: Needing Information Before Taking On Risk

The analytical profile doesn’t shy away from risk: it needs to understand it before taking it on, and only decides once the picture is reasonably clear.

Important note: this article describes a personality trait in the face of risk and uncertainty, not financial advice. It doesn’t replace the judgment of a qualified advisor for any real money or business decision.

Where this way of deciding comes from

This profile shouldn’t be confused with the conservative one: it doesn’t avoid risk as a rule; what it needs is to reduce uncertainty with data before committing.

It’s a deliberative style, close to what psychologist Daniel Kahneman popularized in Thinking, Fast and Slow (2011) as “slow” thinking: more conscious, more logical, and less driven by first impressions than “fast,” intuitive thinking.

Research on individual differences gives it more precise names:

• Need for cognition. John Cacioppo and Richard Petty (1982) defined it as the tendency to engage in and enjoy effortful thinking. High scorers seek out and work through more information before forming a judgment.
• Rational decision style. On Scott and Bruce’s decision-making style scale (1995), the rational style is marked by a thorough search for information and a logical evaluation of alternatives. It’s one of five styles, alongside the intuitive, dependent, avoidant, and spontaneous ones.
• Risk perception versus taste for risk. Weber, Blais, and Betz’s DOSPERT scale (2002) showed that behavior toward risk depends both on how much risk someone perceives in a situation and on their attitude toward it. The analytical profile works on the first variable: it lowers perceived risk by getting informed, and only then decides.

How to recognize it

• Needs to gather as much information as possible before deciding.
• Would rather postpone a decision than make it with incomplete data.
• Likes to compare several options thoroughly before settling on one.
• Distrusts decisions made on intuition alone, with nothing to back them up.

An example: choosing a mortgage, the analytical person builds a spreadsheet with five offers, compares the interest rate, the fees, and the bundled products, and simulates what would happen if rates rose by two points. It may take weeks, but when they sign, they know exactly what they’ve signed.

When analysis stops adding certainty

Looking for more information has a limit, and research has measured it.

• More data, more confidence, not always more accuracy. In a classic study, Stuart Oskamp (1965) gave clinical psychologists increasing amounts of information about a case: their confidence in their judgments rose with each block of data, while their accuracy barely changed. Decades later, Hall, Ariss, and Todorov (2007) found something similar when asking for basketball game predictions: adding certain information increased confidence and could reduce accuracy.
• Searching for the best option has a cost. Barry Schwartz and colleagues (2002) distinguished between maximizers, who look for the best possible option, and people who settle for one that’s good enough. Maximizers reported more regret and less life satisfaction than those who settled.

What’s often called analysis paralysis shows up right there: when analysis no longer reduces uncertainty and only delays the decision. That’s why this profile’s strength isn’t in accumulating data, but in knowing which data matter and when they’re enough. Setting a decision deadline in advance is a common way to mark that point.

Understanding your own numbers

Research on financial literacy backs the most solid part of this profile. Annamaria Lusardi and Olivia Mitchell (2014) reviewed surveys from many countries and found that basic concepts like compound interest, inflation, and risk diversification are not widely understood, and that understanding them is associated with better retirement planning and better management of savings and debt.

That same intuition, that understanding your own numbers matters as much as earning more, is the one entrepreneur Robert Kiyosaki popularized in Rich Dad Poor Dad (1997) with his distinction between assets and liabilities. It’s a hugely popular book, but several of its specific recommendations have been heavily criticized by economists and advisors, so only that general idea is used here.

Close to the conservative profile, but not the same

It shares the conservative profile’s caution in the face of uncertainty, but differs in the reason: one avoids risk, the other studies it.

At the opposite end is the risk-taker profile, which decides quickly and is comfortable without having all the information.

Want to see exactly where you stand? Take the investor profile quiz (a personality quiz, not a financial one).

Sources

• Cacioppo, J. T., and Petty, R. E. (1982). The need for cognition. Journal of Personality and Social Psychology, 42(1), 116-131. doi:10.1037/0022-3514.42.1.116
• Hall, C., Ariss, L., and Todorov, A. (2007). The illusion of knowledge: When more information reduces accuracy and increases confidence. Organizational Behavior and Human Decision Processes, 103(2), 277-290. doi:10.1016/j.obhdp.2007.01.003
• Kahneman, D. (2011). Thinking, Fast and Slow. Farrar, Straus and Giroux.
• Kiyosaki, R. T., and Lechter, S. L. (1997). Rich Dad, Poor Dad.
• Lusardi, A., and Mitchell, O. (2014). The economic importance of financial literacy: Theory and evidence. Journal of Economic Literature, 52(1), 5-44. doi:10.1257/jel.52.1.5
• Oskamp, S. (1965). Overconfidence in case-study judgments. Journal of Consulting Psychology, 29(3), 261-265. doi:10.1037/h0022125
• Schwartz, B., Ward, A., Monterosso, J., Lyubomirsky, S., White, K., and Lehman, D. (2002). Maximizing versus satisficing: Happiness is a matter of choice. Journal of Personality and Social Psychology, 83(5), 1178-1197. doi:10.1037/0022-3514.83.5.1178
• Scott, S., and Bruce, R. (1995). Decision-making style: The development and assessment of a new measure. Educational and Psychological Measurement, 55(5), 818-831. doi:10.1177/0013164495055005017
• Weber, E. U., Blais, A.-R., and Betz, N. E. (2002). A domain-specific risk-attitude scale: Measuring risk perceptions and risk behaviors. Journal of Behavioral Decision Making, 15(4), 263-290. doi:10.1002/bdm.414