Give me a break

I struggle to think of many good things to come out of the pandemic apart from a fabulous recipe for squishy chocolate chip cookies that I unearthed in desperation after the closure of my usual source.  However, it has afforded us the opportunity to reassess the structure of our working day – in terms of both location and schedule.  Many companies have come to the realisation that having people sitting in an office from nine-ish to five-ish is not necessarily linked to productivity – and in many cases, is linked only adversely.  And alongside this realisation comes a renewed interest in understanding when and how people work best – i.e. most productively and most accurately.

In May this year, researchers in Cambridge University’s Department of Psychology published the results of their study into “Quantifying the cost of decision fatigue: suboptimal risk decisions in finance”.  Decision fatigue is the tiredness caused by having to make difficult decisions over a long period, and previous studies have shown that people suffering from decision fatigue tend to fall back on the “default decision” – i.e. choosing whatever option is easier or seems safer.  In this study, the researchers looked at the decisions made on 26,501 credit loan applications by thirty credit officers of a major bank over a month.  The officers were making decisions on “restructuring requests”, where the customer already has a loan but is having difficulties paying it back, so asks the bank to adjust the repayments; such decisions are considered cognitively demanding because credit officers have to weigh up the financial strength of the customer against risk factors that reduce the likelihood of repayment, and errors can be costly to the bank (approving the request results in a loss relative to the original payment plan, but if the restructuring succeeds, the loss is significantly smaller than if the loan is not repaid at all).  By studying decisions made at a bank, the researchers could calculate the economic cost of decision fatigue – and they found that the bank could have collected around an extra US$500,000 in loan repayments if all decisions had been made in the early morning.

Yes, the timing matters.  As Professor Simone Schnall, senior author of the report, explains: “Credit officers were more willing to make the difficult decision of granting a customer more lenient loan repayment terms in the morning, but by midday they showed decision fatigue and were less likely to agree to a loan restructuring request.  After lunchtime they probably felt more refreshed and were able to make better decisions again.”  This second finding suggests that regular breaks during working hours are important for maintaining high levels of performance.

So why am I bothering my AML-ish readers with this – however passingly interesting it may be?  Well, it occurs to me that much of the work done by a compliance team, and even more so by the MLRO, is “cognitively demanding”.  It’s not just tick-box stuff: you are reviewing SARs submitted by staff, judging the quality and implications of CDD material, constantly assessing and reassessing risk against a changing background – all higher brain function stuff.  And if you’re doing it at 4pm, shattered because you’ve missed your lunch-break again, well, it makes sense that your decisions are going to be affected.  Definitely food for thought – mine’s a squishy chocolate chip cookie, thanks.

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