Nobel Prize in Economics Solidifies Dr. Dan Geller's Work in Behavioral Economics and Money Anxiety in Banking

SAN FRANCISCO, Oct. 10, 2017 /PRNewswire/ -- The Nobel Prize in Economics recently awarded to Professor Richard H. Thaler for his behavioral economics work supporting the irrational model of financial decision is the cornerstone of the Money Anxiety Theory developed by Dr. Dan Geller.

Research conducted by Dr. Geller shows that money anxiety is a major factor in the irrational model of decision making. In his book, Money Anxiety, Dr. Geller demonstrates how money anxiety shapes our financial decision making. For example, when money anxiety is elevated during recessions, people tend to shift money from higher yielding bank accounts to much lower yielding bank accounts just to feel that their money is more readily available; a phenomenon known as "mattress money."

Dr. Geller's research has far reaching implications on the banking industry. His latest study, "Dynamics of Yield Gravity," shows that banks are at risk of not having enough term liquidity (Certificates of Deposits) during the next financial crisis that would be needed to comply with the latest liquidity requirements of the FDIC. That's because interest rates of deposits lack the ability to attract term deposits during times of high money anxiety. The study was presented at the International Conference on Business and Economic in April and at the 2017 Australian Conference of Economists in July of this year.

The study shows that during the Great Recession and its aftermath, 2008-2012, people gave up 5 times higher interest rates just for the feeling that their money is readily available to them in a phenomenon known as "mattress money." The average rate of Certificate of Deposits (CDs) was nearly 5 times that of liquid accounts (checking, savings and money market). Yet the amount of bank deposits in CDs decreased by 22 percent, while balances of liquid accounts increased by 78.9 percent.

A major finding in the study was that high money anxiety is the cause of this phenomenon. During the Great Recession and its aftermath 2008-2012, the Money Anxiety Index, which measure the level of financial stress and anxiety, increased from 58.8 to 100.82 index points. This finding is supported by the American Psychological Association survey on stress in America, which found that the level of financial stress and anxiety increased during the same time period.

The Dynamics of Yield gravity is currently under review by the FDIC. The implications of the study are that banks are likely to underperform on the Net Stable Funding Ratio (NSFR) requirement of sufficient one-year liquidity during the next recession, as well as experience lower net interest margin due to higher level of interest expense on liquid accounts. Therefore, the banking system needs to incorporate behavioral economics models into their liquidity and interest expense models.

Professor Thaler, of the University of Chicago's Booth School of Business, is a pioneer in the application of psychology to economic behavior to explain how people are capable of making irrational economic decisions. His research in behavioral economics, alongside other icons in this field such as Nobel Laureates Daniel Kahneman and Robert J. Shiller, made behavioral economics mainstream for academic research and economic policy.

About Dr. Dan Geller
Dr. Dan Geller is a behavioral economist who pioneered the research and application of behavioral economics to the banking services. Through his research firm, Analyticom, Dr. Geller provides banking executives with scientific forecasting and pricing tools enabling them to improve financial performance. Dr. Geller is a frequent speaker and media guest. He appeared on national TV and radio, such as CNBC and Fox, and delivered the keynote address at the American Banker's Symposium.

Dr. Geller is the author of the behavioral economics book Money Anxiety which was named a "must read book" by Business Insider. He is also the developer of the Money Anxiety Index, which pointed to a looming recession 14 months in advance because it is the only financial confidence index that measures what people do rather than what people say in response to confidence surveys and opinion polls.

For information, go to Analyticom.

Media contact information:
Dr. Dan Geller
415-891-3093
[email protected]

SOURCE Dr. Dan Geller