Combining Artificial Intelligence with Psychological Models to Predict Financial Behavior

As technology advances, businesses are increasingly stockpiling data about past user behaviors and relying on it to guide their strategies. They use data points such as a user’s credit score or previous purchases. However, this information is only a fraction of the whole picture. If you’re turning away business based on these metrics, you could be turning away future revenue without even realizing it.

Here’s why.

The inability to predict a user’s psychology of money can place harsh limits on both businesses and individual consumers. Young people, for example, may have a short credit history and be denied credit from banks. Add to it the millions of people in both the developed and the developing world who are under- or completely unbanked, and you can see the potential market loss. A lot of these people are reliable borrowers. They deserve a chance. That’s why at Motiv8AI we have turned to trait psychology and combined it with AI to empower businesses to push through these limits, and help consumers in the process.

Personality: A Complex Combination of Individual Characteristics

Trait psychology, or trait theory, is an established field of psychology which posits that people differ from each other based on the strength or weakness of certain traits. While psychological trait analysis is a complex process, when performed effectively by trained psychologists, it can unlock significant insights into personality, behavior patterns, and decision making.

The long-established Five Factor Model (FFM) is widely accepted by psychologists as an accurate approximation for determining a person’s trait dimensions, and it scores individuals on a spectrum (from high to low) for the following traits:

• Openness
• Conscientiousness
• Extroversion
• Agreeableness
• Neuroticism

These traits all coexist with each other and all individuals display varying degrees of each trait. When you identify where a person falls on the spectrum for each trait and analyze all five spectrums comprehensively and together, you can gain a clearer insight into individuals’ personality and behaviors.

What’s particularly interesting for businesses that seek to build long-term customer relationships is that most people’s traits don’t change over time — their dominant traits usually stay in a similar range. This means that when you accurately deduce a person’s dominant traits based on data you already possess, you can accurately draw up predictions regarding their future behavior, especially when it comes to financial actions.

The Impact of Personality Traits on Financial Psychology

An individual’s personality traits are reflected in all of their actions, including in how they manage their finances.

For example, where an individual falls in the openness spectrum may affect how likely he or she is to make impulsive purchases. It’s worth noting that individuals who score strongly on the openness trait are usually more proactive in building long-term savings and investing in the stock market.

Where an individual falls in the conscientiousness spectrum tends to be correlated with their levels of punctuality, purposefulness, and self-control. If a person falls on the high end of the conscientious spectrum, they’re also more likely to have a positive link with responsible financial behavior, be more value conscious, and successfully plan their financial future.

Let’s now take a look at extraversion. People who score higher in extraversion may have a tendency to save less and accrue higher debt. On the other hand, they also tend to have higher incomes and reduced cumulative unemployment. Extroverted individuals tend to have a higher risk tolerance too, and this often translates into holding higher-risk assets.

The more agreeable an individual is, the greater their tendency to prefer low risk/low return investments and borrow money. These individuals may also be more likely to commit to social causes, support and invest in Environmental, Social, and Governance (ESG) companies and portfolios.

Finally, individuals who exhibit higher levels of emotional stability tend to have shorter periods of unemployment and high lifetime earnings.

Remember, these traits don’t exist as stand-alones — the human psyche is complex and people have multiple traits that coexist in varying degrees. Identifying exactly where users fall on these five broad spectrums poses many challenges. And doing it at scale is nearly impossible. Not only do organizations face a lack of time and resources, but there’s simply too much room for human error. In addition, most consumers aren’t likely to disclose their personality traits through lengthy questionnaires or interviews.

So how can organizations go about achieving a conclusive user profile?

Correlating AI and Personality Traits to Predict Financial Behaviors

Current data models don’t take individuals’ personality traits into account. With an insufficient or inaccurate user profile, organizations open themselves up to increased risk, reduced profits, and a loss of competitive edge.

Enter EmpathAI.

EmpathAI establishes a correlation between a user’s cell phone use metadata and their personality traits, empowering organizations to approach relationships more appropriately and, most importantly, more profitably. It helps customers with a short track record or even no track record at all to access products and services.

According to a study on Financial Inclusion and Alternate Credit Scoring: Role of Big Data and Machine Learning in Fintech, taking users’ mobile and social footprint into account could lead to shared benefits, such as increased credit card and loan approvals. In addition, studies such as Personality Traits Predict Smartphone Usage have shown that the way people use their phones provides solid ground to understand their personality traits.

These studies teach us that there is more to a client than their credit history, and that valuable information about them may be revealed by taking into account other behaviors and traits. Inspired by this understanding, and by adding the important dimension of privacy and permissions, we trained EmpathAI to analyze users’ mobile phone metadata. These users may include loan applicants at a bank or members of a retail club. Note that EmpathAI does not deploy social footprinting or OSINT (open source intelligence) tools.

How Empath AI works

Using artificial intelligence, complex machine learning algorithms, and psychological trait modeling, the unique EmpathAI technology analyzes cell phone behavior to pinpoint where users fall on the spectrum for the big five psychological traits. It instantly builds comprehensive, multi-dimensional customer profiles at scale based on this metadata which complies with all relevant privacy regulations, such as GDPR. EmpathAI also forecasts each customer’s future behaviors in near real-time based on its conclusions.

Based on this unique psychological profiling, EmpathAI helps financial institutions, retailers, and other businesses understand the human behind the data, which empowers them to achieve a larger market share, sustainably grow their customer base, and optimize their risk profiles.

With EmpathAI, customers with little or no track record, those who are underbanked or unbanked, can now access a variety of financial, retail and other products and services, enjoying a chance to improve their own lives as well as those around them.

In addition to fueling double-digit growth for businesses in a variety of industries, EmpathAI also promotes Environmental, Social, and Corporate Governance (ESG) by enabling financial inclusion for households and small businesses. By analyzing a person’s character along with their data, business can increase prosperity and promote economic growth for all.