Rationale Behind The PIP

First consider that the term 'Psychonomics' itself isn't simply a contraction of psychology and economics, but refers to a mass of disparate factors that need to be considered together or integrated for a solution. For this reason the term has particular relevance when considering the wide range of personality traits that feed into personal investment decisions, as well as how an individual deals with issues of financial security and risk .

Hence, there is a link between personality and investment behavior. And, taking several traits together, investors can be classified in a general way as either: Cautious, Emotional, Technical, Busy, Casual or Informed.

This approach is based on work by Jonathan Myers, and more can be seen in the best-selling book Profits Without Panic: Investment Psychology For Personal Wealth.

An underlying assumption of the Psychonomic Investor Profiler is that individuals will treat different aspects of their life in the same way. For example, if people are cautious by nature, avoiding danger to themselves, they will also be cautious when it comes to investing their money. What changes their investment behavior, under variable risk conditions, is not only how they personally view that risk but also how they view money itself - that is, its gain or loss. Money is a very powerful agent of behavioral change. This stems from work in behavioral finance which shows that investors perceive gains and losses asymmetrically; which simply means that it hurts to lose a dollar far more than gaining a dollar gives pleasure. Additionally, their behavior is modified by personal bias as well as crowd pressure - together forming their internal market and the external market that then acts on their decision-making ability. In this way an investor's level of cautiousness also changes. The approach differs from other systems, therefore, in that it doesn't assume that people have totally different attributes depending on the circumstances they're faced with. In a psychonomic approach, investors have the same attributes but they are mitigated - or their balance changes - according to the situation and the way they deal with it.

Consequently, many typographies, have risk as a part of the classification itself - ie The 'Risk-Seeker' - which is problematic. Two investors with the same profile characteristics may make very different financial choices. What's different about them is their propensity for risk, not their innate characteristics. In the Psychonomic Investor Profiler, individuals are assessed according to whether they have a high, medium or low propensity for risk, within their particular balance of personal traits.