Edited by Hans-W. Micklitz, Anne-Lise Sibony and Fabrizio Esposito
Chapter 10: A behavioural perspective on consumer finance
There are important behavioural reasons why financial consumers tend to make suboptimal financial decisions. Regulatory responses are warranted. Existing regulations have been designed to protect financial consumers and make them better off, but well-meaning interventions may sometimes make consumers worse off as they contain behaviourally blind spots and are mis-calibrated. The behavioural lens shows that the calibration of such regulation is itself delicate: well-meaning regulatory interventions that do not take into account behavioural insights may make consumers worse off. The limited cognitive power of financial consumers and their preference for the present are two large elements of the hidden behavioural iceberg on which traditional regulatory interventions have often crashed, even as behavioural realities are becoming more present in the regulatory conversation. Financial firms are often in a position to exploit behavioural traits, which increases the necessity for regulators to take into consideration behavioural realities. It also strengthens the case for performance-based requirements that put the onus on firms to harness behavioural traits in a manner that is favourable to consumers. Meanwhile, interventions designed to modify the choice architecture can be truly effective under certain conditions. In particular, there is a growing interest in personalised regulatory interventions that take into account individual differences in behaviour and degrees of rationality.
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