What do organ donors in Sweden have to do with the price of a Hershey's Kiss in America? The answer is everything. 

A study of organ donor participation across Western Europe and Scandinavia can teach us a great deal about our behavioral propensities. Dan Ariely, an Economics professor at MIT, has engaged in some thoughtful research on this. When we look at countries with high participation and those with low participation, it is hard to determine exactly why neighboring countries like Sweden and Denmark have very different participation rates. Likewise, the UK and France, also neighboring countries and similar culturally, have vastly differing participation rates. The answer cannot be found in their cultural or religious similarities. It comes down to one question that would-be drivers are asked when they are applying or re-applying for their driver’s license. In countries with low participation, the question on the license application form looks like the box on the left. In contrast, countries with high participation, very slightly alter the question on the application (box on the right).

This is, as Ariely adroitly explains, predictably irrational behavior. Those that choose not to participate by not checking the box are choosing not to consent, whereas by contrast, those that choose not to opt out of organ donorship are choosing to donate their organs. This is also called negative consent. What’s most poignant here is that choosing not to check the box, while leading to different results, represents the same choice or put in a different way, points to a specific behavioral proclivity. That is our desire not to make a “difficult” decision. Empirical research suggests that there is a high correlation between the complexity a decision and our degree of aversion.

Better if it’s Free?Ariely also looked at our irrational financial decision making, which in some cases is more acute. He demonstrated this by conducting an experiment where he sold chocolates to MIT students. They had a choice to buy a Lindt Swiss chocolate truffle for 15 cents or a Hershey’s chocolate Kiss for 1 cent. In spite of the considerable price disparity, most will agree that Lindt truffles are far superior in taste, texture and overall quality. And roughly 73% chose the Swiss delight over it’s inferior American competitor. What happened next is where it gets interesting. They then lowered the price on both by 1 cent. This brought the Lindt truffle down to 14 cents, an even better price for such a fine, creamy sweet and the Hershey’s Kiss was now free. The results: 69% chose the free Hershey’s Kiss in spite of the now, even better price for a Lindt truffle. Why did 69% of people choose the free and inferior Hershey’s Kiss over the Lindt truffle. Simply put, because it was free. Why is “free” so appealing? Because it requires very

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SAGE Advice: A White Paper Series from Managing Partners, Khaled Taha &

Adrian Park

Check the box if you want to participate in the organ donor program

Check the box if you do not want to participate in the organ donor program

Neuro-Economics: Organ Donors and Hershey’s Kisses

little if any deductive power or decision making. Put another way, our behavioral bias toward free is not a commentary on our desire to get something for nothing, it is simply an easier decision.

The same mechanism that causes us not to consent or to negatively consent to organ donorship as well as choose the free Hershey’s Kiss prevails when we are standing at the cold beverage cooler. Most of us will choose a Budweiser brand beer over the brand we don't know, even if the other is less expensive or has a more interesting label. This bias also steers us toward Tiffany's, rather than the other jewelry store even if the other has a well-appointed display. We do this, because we are not sure if the other store’s jewelry is going to be more expensive; we don’t know if it is going to be of the same quality or even if the salesperson is going to be friendly or pushy. Each of these variables increases our aversion. Tiffany is a known experience (fewer variables), which makes it an easier decision.

What is Neuro-Economic?This is one of a number of behavioral metrics that we have included as we developed and constructed our Neuro-Economic Investment Strategy. Presently, there are a few large institutions that have “Behavioral” investment portfolios, however, they are technically driven. This means that a great deal of the investment decision making is done by computer software which assimilates and calculates technical data and that data is what influences what is traded and when. At SAGE Private Wealth Group, our strategy is a marriage of three disciplines.

• We use our proprietary behavioral metrics, based on our research of buying behaviors, known behavioral propensities and empirical neural research.

• We consider the fundamental analysis of the companies that we feel meet these behavioral metrics.

• We review capitalization, region and sector to understand what the risk characteristics are, how emerging international economies might influence growth and contrast our stock selections with their relevant sectors and indices to asses how much risk we are taking relative to a known proxy.

These metrics brought us twenty-six companies and we have listed seven of those twenty-six below. These names are in our flagship Neuro-Economic strategy and we have listed their 2012 full year performance below against the S&P 500.

Company Name Ticker symbol 2012 Performance* Anheuser-Busch Inbev SA BUD +41.52%Bayerische Motoren Werke AG (BMW) BAMXY +37.77%Diageo PLC DEO +31.58%Limited Brands, Inc. LTD +20.20%Target Corp TGT +19.58%Under Armour, Inc. UA +35.00%Visa, Inc. V +44.98%

S&P 500 Index SPX +14.96%

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Neuro-Economics: Organ Donors and Hershey’s Kisses

Times are ChangingThe investment landscape is in the midst of a crisis. Actively managed investments seem to be consistently underperforming their relative benchmarks. This is not new. In fact, for much of the last decade, many portfolios have underperformed. We believe that money managers have to evolve; to seek non-traditional ways of thinking about where to find value in public markets. This is why we developed our Neuro-Economic strategy. The human brain has predictable mechanisms that influence our decision making. We are monetizing these.

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Source: Ariely, Dan. (2009). Predictably Irrational. New York: Harper Collins Publishers

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee

that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Adrian R. Park or Khaled A. Taha and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors. Past performance may not be indicative of future results. You should

discuss any tax or legal matters with the appropriate professional. Adrian R. Park, Khaled A. Taha, Raymond James Financial Services, Inc., its affiliates, officers, directors or branch offices may in the normal course of business have a position in any securities

mentioned in this report. All stock prices are quoted as of 12/31/12 .

The S&P 500 is an unmanaged index of 500 widely held stocks that’s generally considered representative of the U.S. stock market. Inclusion of these indexes is for illustrative purposes only. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual

investor’s results will vary.BAMXY, BUD and LTD are not closely followed by Raymond James Research.

Securities offered through Raymond James Financial Services Inc. Member FINRA/SIPCSAGE Private Wealth Group is independent of Raymond James Financial Services

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Adrian R. ParkManaging Partner, SPWGFinancial Advisor, RJFS

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