Finance — Our approach

Money is not the goal. Financial security is the removal of a barrier — one less thing to worry about so you can focus on what actually matters.

The problem

Most people do not have a healthy relationship with money. The statistics are stark: across developed economies, a majority of adults report feeling anxious about their finances at least monthly (Shapiro & Burchell, 2002). This isn’t about income level — financial anxiety is surprisingly independent of how much you earn.

Why money causes so much stress. Unlike other life domains, money is both abstract (a number on a screen) and inescapable (you encounter it daily). People struggle with it because:

Financial decisions are never fully independent. Buying coffee today affects your budget next week.
Outcomes are delayed. The benefit of saving shows up months or years later, while the cost is immediate.
The stakes feel high. A wrong financial decision can have cascading consequences — overdrafts, debt, eviction.

Financial stress isn’t just unpleasant. It measurably reduces cognitive capacity. Mullainathan and Shafir (2013) showed that worrying about money can reduce measured IQ by as much as 13 points — equivalent to a night without sleep. When your brain is preoccupied with money, you have less bandwidth for everything else.

What the science says

Prospect theory and loss aversion

The foundational finding in behavioural economics is that losses hurt more than gains feel good (Kahneman & Tversky, 1979). Losing £50 feels worse than finding £50 feels good — roughly twice as bad, in experimental settings.

This asymmetry explains why people make seemingly irrational financial choices:

They hold losing investments too long (hoping to avoid realising the loss)
They avoid necessary budget cuts (cutting feels like a loss)
They prioritise small immediate savings over large long-term benefits

“For the human mind, loss is more salient than gain. A budget cut of £10 feels more significant than a salary increase of £20.” — Kahneman, 2011

Mental accounting

People do not treat all money as fungible, even though it is. Thaler (1985, 1999) showed that people create mental accounts — “grocery money”, “entertainment money”, “savings” — and treat violations of these categories as though real money were at stake.

This is not rational, but it is predictable. Oter’s budgeting system is built to work with mental accounting rather than against it. Instead of telling you “money is money”, we let you create budgets that match your natural categories.

Temporal discounting

When given a choice between £100 today and £110 in a month, most people take the £100 (Thaler, 1981). This is temporal discounting: we value immediate rewards much more than future ones, even when the future reward is objectively larger.

This shapes every financial habit. Saving for retirement is hard because the reward is decades away. Budgeting is hard because skipping the purchase today is a concrete loss and the future benefit is abstract.

Oter’s balance prediction engine addresses this directly. By making future consequences visible today — “if you spend this much, your balance will be negative in three months” — it converts an abstract future cost into a concrete present signal.

Scarcity and bandwidth

When people feel they don’t have enough — enough money, enough time, enough food — their cognitive performance declines. Mullainathan and Shafir (2013) call this the scarcity trap: scarcity causes tunnelling (focusing on the immediate shortage), which causes poor long-term decisions, which deepens scarcity.

They demonstrated this experimentally with sugarcane farmers in India. Farmers are rich right after the harvest and poor before it. The same farmers scored significantly lower on IQ and executive function tests before the harvest than after — not because their intelligence changed, but because financial scarcity consumed their mental bandwidth.

The implication: financial tools must reduce cognitive load, not add to it. Every extra input field, every complex report, every hard-to-find setting is another demand on bandwidth that someone in scarcity doesn’t have.

Prediction and uncertainty reduction

Humans find uncertainty genuinely aversive. Loewenstein (1994) showed that people prefer to know a negative outcome than to remain uncertain. The information gap theory (Loewenstein, 2004) proposes that curiosity is driven by the discomfort of not knowing — and financial uncertainty is among the most uncomfortable kinds.

Oter’s balance prediction engine addresses this by making uncertainty concrete. Instead of “I don’t know if I’ll have enough money next month”, the app says: “Based on your data, there’s an 80% chance your balance will be above £500, and a 20% chance it dips to £200.” That feels different. It’s still uncertain, but it’s actionable uncertainty.

How Oter applies it

Loss-framed budgets

Most budgeting apps frame budgets as limits you shouldn’t cross — a loss frame. Oter uses the same mechanism intentionally, but balances it with scenario planning. The prediction engine shows you the consequences of spending rather than just the rules. This turns a loss frame (“you can’t spend more than £400 on food”) into a forward-looking tool (“if you spend £400 on food, your balance on the 25th will be…”).

Mental accounting by category

Oter’s category system mirrors the way people naturally think about money. Categories like Food, Housing, Transport, and Entertainment match the mental accounts people already use. The auto-classification system based on keyword rules reduces the friction of keeping these accounts accurate.

The three-scenario prediction

The balance prediction engine shows optimistic, pessimistic, and base scenarios. This is not about accuracy — it is about uncertainty normalisation. By framing prediction as a range rather than a single number, Oter reduces the shock of deviation. When the pessimistic scenario is already on the table, a bad month feels like a known possibility rather than a failure.

Scheduled transactions and safety floors

Scheduled transactions offload memory and reduce the cognitive load of remembering bills and income dates. The safety floor feature — alerts when your projected balance falls below a threshold — is a direct application of the scarcity research: it catches the tunnelling trap before it happens.

The scenario lab

The scenario lab lets you ask “what if?” without real-world consequences — add a hypothetical large purchase, adjust a category’s spending, see the impact on your balance months later. This is prospective mental simulation, a technique that research shows improves financial decision-making more than retrospective analysis (Klein, 1999).

Practical tips for getting the most out of Oter’s finance tools

Set up scheduled transactions first. The prediction engine is only as good as the recurring items it knows about. Rent, salary, subscriptions — enter them once and let the app handle the rest.
Use keyword rules for classification. One rule per frequent merchant (“NETFLIX → Subscription”) will save you dozens of manual categorisations per month.
Check your safety floor. Set a minimum balance that makes you feel secure. The prediction engine will flag any scenario where you might dip below it.
Run a scenario lab when facing a big decision. Going on that trip? Buying that laptop? Simulate it before committing. The answer is often surprising.
Don’t aim for perfect data. A transaction miscategorised by a few pounds doesn’t matter. The prediction engine is robust to noise. Obsessive categorisation is itself a form of financial anxiety.

References

Kahneman, D. (2011). Thinking, Fast and Slow. Farrar, Straus and Giroux.

Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47(2), 263–291.

Klein, G. (1999). Sources of Power: How People Make Decisions. MIT Press.

Loewenstein, G. (1994). The psychology of curiosity: A review and reinterpretation. Psychological Bulletin, 116(1), 75–98.

Loewenstein, G. (2004). Projection bias in predicting future utility. In Advances in Behavioral Economics. Princeton University Press.

Mullainathan, S., & Shafir, E. (2013). Scarcity: Why Having Too Little Means So Much. Times Books.

Shapiro, G. K., & Burchell, B. J. (2002). The effects of financial anxiety on psychological well-being. Journal of Economic Psychology, 23(6), 679–701.

Thaler, R. H. (1981). Some empirical evidence on dynamic inconsistency. Economics Letters, 8(3), 201–207.

Thaler, R. H. (1985). Mental accounting and consumer choice. Marketing Science, 4(3), 199–214.

Thaler, R. H. (1999). Mental accounting matters. Journal of Behavioral Decision Making, 12(3), 183–206.