The Effects of Advertising, or Why Smart People Make Poor Financial Decisions

After a long day, you come home tired, sink into the sofa, and start scrolling mindlessly on your phone. Suddenly, an ad pops up: ‘Start investing today – put your money to work and earn more than you would at the bank’ or ‘Withdraw your pension savings and start living now!’ The advertisement features success stories, attractive rates of return, and promises that investing takes just a few taps. Had you seen the same offer that morning, you would probably have viewed it critically. But now, when you are tired, it seems surprisingly tempting. A few taps are all it takes – and the decision is made.

You are an intelligent person – you usually compare prices before making an expensive purchase and believe that you are immune to marketing ploys. Yet even rational, well-educated people may suddenly stop contributing to their pension fund, invest in dubious schemes, or buy a third pair of trainers they clearly do not need. The reason for such behaviour lies not in our intelligence, but in our state of mind. When we are tired, rushed, or stressed, our decisions are increasingly shaped by emotions and automatic responses. This is precisely what advertising exploits: it triggers our fear of missing out and draws us in with the promise of an immediate reward. 

The illusion of rationality in financial decision-making

We tend to associate financial decisions with rationality. Money seems to be all about numbers, interest rates, returns, calculated risks, and the cool-headed logic needed to manage them wisely. In reality, however, many such decisions are not based on careful calculation or analysis of the facts. They are made under very different circumstances – when we are tired, in a hurry, scrolling on our phones, or trying to ease our anxiety about the future, if only for a moment. At such times, our choices are more likely to be guided by emotion than by reason. 

Research supports this: people acknowledge that around 60–70% of their everyday purchasing decisions are at least partly influenced by emotions. In some cases, as many as 95% of decisions are made quickly and subconsciously, before any rational, conscious assessment has even begun.

Today, advertising increasingly seeks to trigger these emotions. On social media, news websites, and other digital platforms, we encounter more than just specific offers to buy something. We also see messages that skilfully exploit our vulnerabilities: the fear of losing out on a bargain, the desire to improve our financial position quickly, and the urge to make the ‘smart’ choice before anyone else does. Once these feelings have been aroused, the boundary between a considered action and an impulsive choice becomes difficult to discern.

The belief that poor financial decisions are made only by inexperienced, less educated, or financially illiterate people remains widespread. However, research reveals a far more uncomfortable reality: victims of investment scams are often individuals with higher education, substantial savings, and strong confidence in their ability to assess risk. In other words, neither a university degree nor financial literacy protects us from emotional influence. On the contrary, excessive confidence in our own rationality can sometimes lower our guard and make us less cautious. 

People are predictably irrational

For a long time, economic theory was dominated by the model of the rational individual. According to this model, people gather information, compare alternatives, weigh up the potential benefits and risks, and then choose the best option. However, a growing body of research in behavioural economics suggests that this is often not how we behave in real life. 

Rather than carefully calculating every decision, we frequently rely on mental shortcuts, intuition, the way information is presented, authority figures, promises, and other signals that allow us to decide more quickly, though not necessarily more wisely. 

Illustration generated with CHATgpt

As Nobel Prize laureate Daniel Kahneman emphasised, human choices are not necessarily irrational; rather, people are simply not well described by the rational-agent model. In other words, the mistakes we make are not random. They stem from recurring patterns of thought that can be anticipated – and therefore exploited. This is precisely why advertising in the financial services sector is so effective: it does more than provide information – it also triggers predictable human responses. 

Fear as one of the strongest drivers of financial behaviour

Fear is an ancient and evolutionarily useful emotion. It helps us recognise threats and protect ourselves against them. In the context of financial decision-making, the threat is generally not physical: it may involve the fear of losing one’s savings, missing an opportunity, failing to keep pace with inflation, or not doing enough to secure one’s future. Crucially, fear is not triggered only by a real danger – the mere perception of it is enough. If we sense that our financial security may be at risk, the body reacts as though disaster were already just around the corner. 

In digital advertising, fear is often activated not through overt scare tactics but through constant reminders that we may be running out of time. The FOMO effect – the fear of missing out – is particularly common in this context. Interestingly, such decisions can be prompted by both negative and positive emotions. Research shows that around 50% of impulsive purchases are linked to stress, while almost as many are driven by excitement or joy. ‘Today only’, ‘Last chance’, and ‘If you do not act now, it will be too late’ – messages such as these are intended less to inform than to create a sense of urgency and discomfort. And in financial matters, urgency almost always encourages impulsiveness rather than careful and well-reasoned decision-making.

Researchers distinguish between two processes that can be triggered by fear. The first is danger control. It occurs when a person recognises a threat but also sees a clear, reliable, and understandable way of reducing it. In such cases, fear can become constructive, prompting rational and purposeful action. The second is fear control. It begins when the threat appears serious, while the proposed solution seems vague, unreliable, or too complex. Instead of seeking a way to address the problem, individuals begin to defend themselves against the unpleasant emotion itself. Responses in such situations tend to be highly emotional and lack any clear reasoning: ‘They are all fraudsters’, ‘I would rather do nothing’, or ‘It sounds too good to be true.’ 

How does greed narrow our perspective?

In public discourse, greed is often treated as a moral failing. From a psychological perspective, however, it can be understood in more neutral terms – as a strong desire to gain more, improve one’s situation, or achieve better results. In the realm of personal finance, this desire is neither inherently bad nor dangerous. Without such motivation, there would probably be no investment, entrepreneurship, or effort to build a better future. The problem arises when the desire to improve one’s current circumstances begins to outweigh the ability to assess risk. Empirical research shows that such emotions have a very tangible effect on behaviour: around 74% of people admit that emotional influences lead them to spend more than they had planned, while a significant proportion subsequently regret or question their decision. In other words, emotions help us decide more quickly, but do not always lead to better outcomes.

Financial services advertising uses this mechanism with striking efficiency. High percentage figures, promises of rapid returns and effortless investing, ‘algorithms that will do everything for you’, images of success, and the prospect of quickly attaining financial freedom influence more than just our judgement. They inspire hope. And in the world of financial promises, expectations fuelled by hope can become a powerful driving force. Instead of considering what might happen in the worst-case scenario, people begin to imagine what their lives might look like if these promises were fulfilled.

In this situation, greed acts as a mechanism that narrows our focus. We become preoccupied with the potential reward and less alert to anything that does not fit the ‘success scenario’, overlooking an unprofessional tone, inadequate explanations, illogical figures, and other warning signs. As a result, the benefits promised in an advertisement often carry more weight than factual arguments. In other words, people begin to believe not what the evidence suggests, but what they desperately want to be true. 

When fear and greed work together

At first glance, fear and greed may seem like opposing emotions. One holds us back from making a decision, while the other pushes us to act. In advertising, however, they often work together: first, the audience is presented with a problem or threat (‘if you do nothing, you will lose out’), followed immediately by a solution (‘if you choose us, you will gain’). Fear creates tension, while greed offers an emotionally appealing way out that appears ‘easy and rewarding’. It is precisely this mechanism that makes the combination so powerful and effective.

Research points to a clear relationship: the more tension an advertisement creates, the stronger the opposite reaction – distrust – may become. If the promised return seems too high, the tone too urgent, and the arguments fail to explain where the proposed benefit comes from, people stop considering whether the offer is worthwhile. Instead, they begin to suspect that they are being taken advantage of. In such situations, advertising often loses its impact: not only does it cease to persuade, but it provokes (and promotes!) a defensive response.

Distrust is more powerful than trust

It is often assumed that not trusting someone simply reflects a low level of trust in that person. However, behavioural research shows that trust and distrust are not at opposite ends of a single continuum. Low trust implies caution and uncertainty about how to interpret a particular situation. Distrust, by contrast, involves an active expectation or belief that the other party to a transaction may act harmfully, dishonestly, or deceptively. It is a far stronger and qualitatively different state. 

For this reason, advertising may not only fail to persuade but may actually deepen distrust. When advertising claims are overly aggressive, the arguments vague, and the communication signals unprofessional, people stop asking, ‘Is this right for me?’ and instead begin to wonder, ‘Are they trying to deceive me?’ At this point, advertising no longer builds trust – it activates distrust. In the financial services sector, distrust generally exerts a much stronger influence than trust, as it protects against impulsive, emotionally driven action, even when an offer might theoretically be worth considering. 

How to recognise the influence of emotions

Emotion-driven states usually have very clear signs. Some are purely physical: an increased heart rate, a sense of urgency, and a desire to act as quickly as possible. Others are cognitive: people begin to justify things that would have seemed suspicious only moments earlier, e.g. ‘The website looks odd because they are probably new to the business’; ‘The returns are high because this is a truly unique and exceptional opportunity’; or ‘There are few terms and conditions because everything is transparent, clear, and straightforward.’ The central issue in such situations is not simply that people make mistakes. It is that they begin to justify those mistakes before they have even made them. 

This is where rationalisation often comes into play: people attempt to provide a rational explanation for a decision that was emotionally driven from the outset (research shows that most consumers experience some degree of regret, doubt, or disappointment after making an impulsive purchase). This state is particularly dangerous because it rarely feels like a loss of control. Quite the opposite: people may believe that they have simply spotted an opportunity before everyone else and gained the privilege of taking advantage of it. This is precisely why financial knowledge alone is not enough to make sound decisions. It is also important to recognise and manage our own reactions during the decision-making process – particularly when an offer seems so attractive that critical questions begin to feel irritating and obstructive rather than helpful. 

How can we take back control from advertising?

One of the most important skills today is knowing when to pause. If an advertisement creates a sense of urgency, it is worth stepping away for a while and trying to assess the situation from an outside perspective. Sometimes a few hours are enough; at other times, it takes a night – hence the expression ‘to sleep on it’ – for the sense of urgency to subside and reveal what our emotions initially prevented us from seeing. It is worth examining both the promise itself and its source: the arguments presented, the provider’s reputation, the terms and conditions, and the level of professionalism. These details often reveal more than the advertising message itself. 

Finally, another simple and effective technique is known as a ‘self-distancing’ test. Imagine that someone close to you has received exactly the same financial offer and asks you to assess it as an expert. Would you really advise them to act as quickly as you are tempted to? We are often far more rational when assessing other people’s decisions than when evaluating our own behaviour. This thought experiment helps us step back from our emotions and return to a more rational assessment.