Last week, I had the distinct good fortune to attend a gathering of behavioral economists where the call was loud and clear for rethinking financial regulation.
The RAND Behavioral Finance Forum is a collective of academic, financial and government leaders engaged in cutting edge behavioral research for practical application. The goal of the forum is to get the financial industry to use the Forum’s output to produce innovative product and service ideas with a unique marketing advantage. At the end of the day the goal is to ensure consumers make better financial decisions.
The following is my perspective on the meeting proceedings:
- Regulation is broken: Industry treats regulation as a big game of Whack-A-Mole. Consumer disclosures, regulatory audits, and the such are followed by banks, but at the end of the day these complex rules don’t meet their intended outputs: a balance between safety/soundness and innovation.
- Financial literacy is the impossible dream: The behavioralist are not too hopeful on educating the consumer, not because its a bad idea, but because the consumer doesn’t care about budgeting, the time value of money, financial terms, etc.
- Tapping into insights from psychologly and economics (~ behavioral finance) could impel both firms and consumers to behave ‘better’: Simple interventions such as how product choices are presented or whether you have consumers opt-in or opt-out of a service can have profound impacts on firm and individual behaviors.
- The ‘behaviorists’ are running the show: Many of the leading thinkers in behavioral finance are now hefty players in the Obama Administration and, as such, regulation will begin to take a more behavioral bent. Cass Sunstein the recently named ‘Regulation Czar’ is head of the Office of Information Regulatory Affairs and Michael Barr has been nominated as Assistant Treasury Secretary – Financial Institutions.
- We heart credit unions: This collection of brilliant minds absolutely love credit unions. I’m not just stating this to make you feel good, but because that is what these government officials, academics and industry leaders told me. This again confirms the potential credit unions have to influence the future of consumer finance. Filene is doing its best to connect credit unions with these kinds of folks. I came back from the meeting with potential connections between credit unions and Duke , Harvard, Princeton and Dartmouth.
More to come on these issues later, however if this is a topic which you find intriguing (and I highly encourage you to be interested!), a great primer on the topic can be found here.
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