Money Talk

<b>Psychology of finance</b><br>The recent implosion in the stock market is a good case study for experts who study behavioral finance - a relatively new area of financial research. The discipline, which

Monday, April 24th 2000, 12:00 am

By: News On 6

Psychology of finance
The recent implosion in the stock market is a good case study for experts who study behavioral finance - a relatively new area of financial research. The discipline, which is garnering more attention from investors, uses psychology and finance to try to explain why investors behave the way they do.

Here are some common errors of perception and judgment that investors make, according to R. Douglas Van Eaton, a finance professor at the University of North Texas in Denton:

Overconfidence - "A great number of psychological studies have demonstrated that test subjects regularly overestimate their abilities, especially relative to others," said Dr. Eaton in an article for the American Association of Individual Investors.

Overconfidence makes investors trade stocks excessively, he said.

Fear of regret - This is rooted in investors' loathing to admit they're wrong.

"In stock transactions, acting so as to avoid the pain of regret can lead to holding losing stocks too long and selling winners too soon," Dr. Eaton said.

Myopic risk aversion - This is the tendency to be shortsighted in activities involving potential losses. Investors in this situation tend to hold "less than the optimal" amount of stocks because they're hung up on the potential loss from a single year's investment in equities, Dr. Eaton said.

A little humor never hurts

How many of us enjoy uttering the "B" word - budget - and live for sitting down at the kitchen table going over our personal finances? Most people would rather be doing other things.

Mapping out your finances is important, but it doesn't mean you have to like it.

ReliaStar Financial Corp. feels your pain.

The Minneapolis financial services firm has launched www.IHateFinancialPlanning.com, a Web site for consumers who detest financial planning and want simplicity in their purchase of financial services and products.

"Financial planning fun? Yeah, right," reads the introduction to the Web site. "Fun like a root canal. Without the laughing gas."

Susan Mead, vice president of strategic marketing and leader of the initiative, said most people "have a love-hate relationship with anything financial.

"This site definitely lives up to its name," she said, "and that will immediately put people at ease."

The site's features include: financial education, weekly financial tips, a free advice line and a tool to help consumers begin investing in mutual funds with as little as $25 a month.

First come, first served at e-bank

WingspanBank.com is paying a 10 percent interest rate to the first 30,000 consumers who open a checking account by June 30.

That ought to send consumers flying to the online bank's Web site. The rate, which is good through Sept. 1, will be paid on balances of up to $10,000, with a minimum deposit of $100. After Sept. 1, nonpromotional rates apply and may vary.

To get the high rate, you have to sign up for payroll direct deposit. You'll earn 10 percent interest on balances up to $10,000 from your first direct deposit.

For balances greater than $10,000, you'll earn a 4.5 percent interest rate.

Wingspan officials said the lower cost of operating an online bank makes it possible for them to offer such a high rate.

"We don't have the physical branches that brick-and-mortar banks have, so we're able to plow those savings back into the rates we offer," said Kevin Watter, senior vice president of marketing at Wingspan.

For more information, go to the bank's Web site at www.WingspanBank.com/special.

Upping the online banking ante

Wingspan's competitor, Dallas-based BankDirect [www.bankdirect.com], is taking to the skies to attract more customers.

The Internet bank has teamed up with American Airlines' AAdvantage mileage program to award miles to BankDirect customers.

The ways to earn miles include:

Opening a new checking or money market account - 1,000 miles.

Using the bank's bill pay service for a year - 2,000 miles.

Signing up for payroll direct deposit - 1,000 miles.

100 miles per month for every $1,000 maintained in a checking account.