The Behavioural Finance Revolution
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The Behavioural Finance Revolution

A New Approach to Financial Policies and Regulations

Edited by Riccardo Viale, Shabnam Mousavi, Barbara Alemanni and Umberto Filotto

Financial markets are complex. Regulators strive to predict ways in which they can malfunction and create rules to prevent this from happening, yet behavioural impacts are often overlooked. This book explores how behavioural finance can go hand-in-hand with traditional methods to help banks and regulators create better policies. It also demonstrates how the behavioural finance revolution has opened the way to a more integrated approach to the analysis of economic phenomena.
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Chapter 4: Do regulators know better?

Umberto Filotto

Abstract

Behavioral regulation is on the agenda of politicians and authorities of most countries as coercive legislation has financial and political costs that are becoming difficult to afford. However, not all measures are equivalent, and not all of them are effective and appropriate in any situation: some issues have thus to be discussed to develop an effective and balanced approach. The preliminary step is the development of a shared vision of objectives of the regulation; once this is reached there are some issues specific to the behavioral approach. The first one is answering the question of the preferability of the gentle push over mandatory rules; then, if we accept the fact that regulators have the right and the duty to regulate, we should be confident that they are competent enough; finally there is the issue of responsibility: what happens, who is responsible and what are the consequences if things go wrong?

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