A recent report from the Associated Press announces the development of a device that could help everyday investors avoid making emotionally driven decisions about their financial moves.

Called the Rationalizer, the device could prompt users to slow down and consider their motives before making hasty purchases or sales.

Background: Irrational Financial Decisions

As mentioned in a previous blog post, researchers have found that levels of testosterone can influence the financial decisions we make.

Traditional wisdom offers a similar diagnosis: greed prompts us to buy too-expensive stocks, while fear prompts us to sell stocks with falling prices, causing some to lose their investments and file bankruptcy.

And even if you aren’t the type to fiddle with your investment portfolio in your spare time, you’ve probably felt the thrill of an impulse buy you never intended to make.

But impulse decisions are rarely wise – and they can prove costly and financially damaging.

Monitor Your Moods with the Rationalizer

Phillips Electronics, producer of the Rationalizer, portrays the product as a sort of cure for impulsive financial decisions. In fact, it’s a little more complicated than that. Here’s how it works, according to reports:

• Sweat-sensing bracelet: When you’re making stock trades at your computer, you can wear a bracelet that essentially monitors your levels of perspiration.
• Radio-signal communication: The information from the bracelet is then transmitted to a bowl-like structure that glows in a variety of colors.
• Color coded identification system: Lights in a bowl vary from yellow (low emotional levels) to orange (moderate levels) to red (high emotions). This lets you know whether or not you’re in a good state of mind to make financial decisions.

Analysis: Controlling Impulsive Decisions

While the device may be useful for those with a history of making emotionally-charged decisions about their finances (or anything, really), it’s probably not a winner for everyone:

• Limited portability: For people who have problems with impulse buying in stores, this bracelet would be of little help – the bowl requires a flat surface to be set up. Online shoppers, though, may benefit.
• Cost: If your problem is buying gadgets that you don’t need, the Rationalizer may contribute more to the problem than the solution.
• Accuracy: No research exists yet to verify the accuracy or effectiveness of this contraption. It may offer insight about your emotional state, but it offers no indication about whether these emotions are positive or negative – and it hasn’t been linked to any success or failure.

The bottom line? The Rationalizer is certainly a cool innovation, but taking a few deep breaths, going for a walk or calling a friend may be better impulse buying deterrents for most people.

Additional Resources

Determinants of Planned and Impulse Buying (PDF)

Tags: investing, rationalizer, stocks