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   Consumer Affairs - Conference

How Can Behavioural Economics Improve Policies Affecting Consumers?


Albert Borschette Centre
36, Rue Froissart
1040 Brussels

Friday 28th November 2008

BACKGROUND INFORMATION


Behavioural Economics (BE) is a young, though rapidly-expanding, discipline that studies how people actually make choices, and draws insights from both psychology and economics. Behavioural Economics explains that real people do not exactly show the homo economicus' characteristics: they are not always selfish (e.g., they donate money), they are not always self-interested (e.g., they may exact revenge even though doing so reveals to be counterproductive) and, above all, they exhibit "bounded" or limited, rather than perfect, rationality. In order to identify and measure behavioural biases, BE heavily relies on field experiments, simulations and even brain scans (this sub-branch is often referred to as neuroeconomics). These controlled experiments can be easily replicated and, hence, the conclusions reached can be checked and repeated.

The Harvard Magazine of March-April 2006 - The Marketplace of Perception - provides a good introduction to the types of behavioural biases that exist. Although some are trivial in their effects, others are costly, and lead to important transfers from consumers to producers. Moreover, these behavioural anomalies may be exacerbated by the behaviour of suppliers, who may put in place marketing and sales strategies in such a way as to dis-empower consumers, such as pre-funding, bundling of several services under the same contract, shrouded product characteristics, hidden costs, confusing or unfair terms, high exit costs etc. BE may also provide useful insights with respect to health issues (e.g., nutritional obesity, behaviourally-driven diseases …). Behavioural economists have collected a wealth of evidence showing that individuals tend to procrastinate in relation to sacrifices, because instant gratification prevails over even larger future rewards.

The potential for BE to contribute to consumer policy per-se and also consumer integration is large. There are two main obstacles to its wider use: the lack of a consensus as to the value of BE among economists and policymakers and the lack of operational policy tools to be used in developing consumer policy. This conference is an excellent opportunity both to make progress on the wider acceptance of behavioural economics and to stimulate the research community to make their work more operationally relevant.

This conference is being organised by the European Commission, DG Health and Consumers

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