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Using experiments to inform consumer protection policy in financial services

Shane Timmons and Pete Lunn

Chapter 12 in Financial Education and Risk Literacy, 2021, pp 197-219 from Edward Elgar Publishing

Abstract: The application of behavioural science to policy often involves field experiments and randomised controlled trials (RCTs) to test how policy changes are implemented. In this chapter, we argue that there is broader scope for behavioural methods to be applied earlier in the policy cycle, such as to diagnose the risk for consumer detriment. We use examples from studies on loans, car finance and mortgages to show how lab experiments that employ tasks designed to mimic the “real world†decisions faced by consumers can provide insight into psychological mechanisms that are difficult to measure in the field. Lab experiments also offer multiple ways to test “good†decision-making, providing an effective way to identify if and how consumers struggle with different features of financial products. The controlled nature of lab experiments can also be used to pre-test solutions or evaluate policy changes. Ultimately, consumers will benefit most from behavioural tests that exploit the range of methods available in behavioural science.

Keywords: Economics and Finance (search for similar items in EconPapers)
Date: 2021
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