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w18-19: Case 5 – Behavioural economics II /2548

>> Download and print the worksheet.

  • Read at least the primary document below and answer the questions on the worksheet.
  • Remember that you will be marked on participation and engagement and that this contributes to your coursework grade for the module.

** Bring your completed worksheet to the tutorial (as well as the article) **

Primary reading

Erta, K et al (2013), Applying behavioural economics at the Financial Conduct Authority, FCA Occasional Paper No.1, April

Note: As this is a fairly lengthy document (71 pages), each discussion question relates to specific parts of the paper (specified after the question), rather than requiring you to read the paper in its entirety

Discussion questions

  1. Outline the general case the FCA makes for using behavioural economics in their regulation of retail financial markets
    [ see: Executive summary, chapter 1 ]
  2. Select one bias or effect caused by bias from each of the three classifications in Table 3 (p17) and Table 4 (p17-19) and explain its impact on consumer behaviour, using real examples (ie discuss three in total)
    [ see: Chapter 3 and for background: Chapter 2, Annex ]
  3. Explain how consumer biases may relate to behaviour by firms and the existence of ‘situational monopolies’ in some markets.
    [ see: Chapter 4 ]
  4. Identify the ‘hard’ and ‘soft’ types of ‘paternalistic’ policy intervention that the FCA can pursue. What factors may affect how successful a policy intervention may be?
    [ see: Exec Summary, Chapter 8 (and Chapter 7 as background) ]

Background reading

** Costa, E et al (2016), Applying behavioural insights to regulated markets, Behavioural Insights Team

Lunn, P (2014), Behavioural Economics and Regulatory Policy, OECD – 9th meeting of the Regulatory Policy Committee, 12-13 November

Sunstein, C (2014), There’s a backlash against nudging – but it was never meant to solve every problem, The Guardian, April 24th

Wheatley, M (2014), Making competition king – the rise of behavioural economics at the FCA, Financial Conduct Authority, Mar 25th

Reflective commentary question

Should policymakers seek to ‘nudge’ consumers to make ‘better’ choices than the consumer might otherwise make?