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Short-sighted Investors

How rational are Russians?


Are modern Russian citizens capable of predicting their incomes? Are they limited by their own rationality when investing in their health and in financial assets? Do they tend to be opportunistic and short-sighted when it comes to making investments? These questions, and more, were answered at HSE St. Petersburg’s School of Economics and Management.

Following in the Footsteps of the Neoclassicists

Researchers have suggested that the consumer behavior and saving habits of Russians, as well as their decision-making around health, may not fit the principles of modern neoclassical economic theory.
In their reasoning, they refer to the rationality of human beings and assume that a person has a clear idea of their goals. A person achieves these goals while taking into account the consequences of their actions.

A choice which takes into account all the limitations and possibilities is the perfect example of rationality. A disinclination to miscalculate (impulsive behavior, short-sightedness) can be considered limited, or low, rationality.

The desire to be rational decreases when the future is uncertain, for example, when there is a high degree of social or political instability. According to the authors of the study, this instability devalues the calculated choice.

Those who live in such unstable environments may suffer from so-called ‘investment myopia’. They fail to correctly evaluate their future, undervalue it, and subsequently invest in short-term assets: they keep money at home, rather than buy shares or deposit it at the bank, inconsistently spend their income and do not know how to predict it. A high degree of opportunistic behavior (from the Latin ‘opportunus’ – convenient, profitable) can be observed. That is, where personal goals are achieved without consideration of the rights and interests of others, including by deceptive or fraudulent means.

In order to establish the extent to which this applies to the population of the Russian Federation, researchers conducted two public opinion polls in 2016 and 2017 and surveyed 521 people, most of whom were young students.

The results of the surveys indicated the degree of rationality in three areas: health capital, cash management, and opportunism.

Health for Homo Economicus

Rationality in the area of health was examined based on responses to questions around smoking, playing sport, and visits to doctors/routine medical examinations.

‘The neoclassical Homo Economicus tends to make positive investments in its health,’ say the authors. ‘This individual plays sport, tries not to get tired at work, and avoids getting into bad habits. By contrast, a nonrational person makes negative investments and may engage in activities such as smoking and alcohol consumption. Over an extended period of time, they destroy their health and their life expectancy decreases.’

In 2016, only 24% of survey participants said that they smoke and 16% said they no longer smoke (as compared to 17% in 2017). The most popular reason for stopping smoking was concern for one’s health (85%). Concern for health is the reason given most often by those who have never smoked, and 10% of these individuals add that tobacco products are an unnecessary expenditure.

In the case of smoking, behavior can be considered rational. However, for a significant percentage of those surveyed, behavior ceases to be rational when it comes to medicine: 58% consult a doctor only if they are concerned about something. Similarly, with regard to sport: 51% either play sport one day a week, or do not play sport on a regular basis.

Finance and The Mind

‘Imagine this: you go to a cafe with a group of friends. You can’t afford anything on the menu. If you decide to eat, then you’ll really have to save hard before the next transfer from your parents comes through (or until next payday / scholarship payment). However, you’re hungry, and your friends have already chosen their meals. What would you do?’

This question tested behavior in a situation involving unintended spending. The rational answer was, ‘I’m not going to eat with the others if it’s beyond my means, or I’ll choose something inexpensive’. The irrational answer was, ‘I'm going to eat with everyone else’.

Most survey participants passed this rationality test. In 2016, 45% decided to eat, but in 2017, only 12% decided to do so – almost 4 times less. The percentage of those who would choose something inexpensive from the menu increased significantly (72%).

The degree of rationality in spending personal savings was determined by presenting survey participants with the choice of either keeping savings in the bank, investing in business or spending it on their house / looking after their relatives. 77% would keep their money at home. This is an example of irrational behavior due to factors such as risk of theft, inflation and loss of potential income.

When it comes to spending their monthly income, Russians are more rational. In 2017, more than 50% spent money in equal measures throughout the month. However, in 2016, this percentage was significantly higher (76.3%).

Almost 77% found it easy to estimate their likely future salary. In 2017, the percentage of those who found it difficult to answer this question (an example of irrational behavior) doubled from 12% in 2016 to 23%.

Meanwhile, the percentage of those who would buy a house or apartment (instead of renting), provided that their income was sufficient, decreased significantly: from 84% (2016) to 54% (2017). This indicates the respondents’ lack of certainty in their futures.

Plagiarists Who Don’t Want to Be Dishonest

The tendency to be opportunistic was tested by asking questions on two topics:

plagiarism: attitudes towards copying in a test situation which goes unpunished, and the choice between writing an essay by oneself and using someone else's;

 a refund: getting extra change from the taxi driver and a friend who forgets that you owe them money.

90% of young people would prefer to copy in a test situation and 62% are ready to hand in someone else’s essay as their own. However, only 38% would keep the extra change from the taxi driver. Even fewer respondents (10%) would be capable of not paying their friend back.

Research did not reveal a strong desire among respondents to be dishonest in any of these situations. Moreover, in comparing life at university and life outside it, the results differ markedly: respondents may be opportunistic in education-related activities, but outside university, the majority are unwilling to be dishonest.

What Impacts on Rationality?

Attitudes toward health, personal finance and opportunism are interrelated and depend on a person’s characteristics and their environment. Researchers confirmed this by carrying out an econometric analysis of the survey results. Calculations based on logit models yielded the following:

 rationality does not depend on gender;

 rationality is significantly influenced by the stage which a student is at in their degree. Third-year students tend to be more rational in all three areas. Students doing Master’s programmes are less inclined to be rational in the areas of opportunism and health capital (they tend to smoke, but not to copy);

 students who pay for their studies are much less rational when making decisions in the area of cash management. This may be because most of them have money and can therefore afford to be more relaxed about spending;

 students studying Economics are less likely to be non-smokers and less likely to be uninterested in sport;

 the smokers and those who are not interested in sport most likely do not study and estimate their future monthly income at 20 000-40 000 rubles.

Different areas of rationality have an effect on each other. For example, if a person is not into investing their money, then they are more likely to copy in a test and to copy an essay. However, if a person would return extra change to the taxi driver, then they are less likely to copy and less likely to pay their friend back.

However, mutual influence is not always positive. That is, rational behavior in one area does not guarantee rational behavior in another. For example, a person who looks after their health does not necessarily effectively manage their savings.


Study authors:

Ivan V. Rozmainsky, Associate Professor at the HSE, St.Petersburg School of Economics and Management
Anna Ivlieva, Bachelor’s student in Economics of the HSE

Pavel Kim, Bachelor’s student in Economics of the HSE
Antonina Podgayskaya, Bachelor’s student in Economics of the HSE
Author: Svetlana Saltanova, March 02, 2018