How Can Behavioural Economics Improve Policies Affecting Consumers?
Albert Borschette Centre
36, Rue Froissart
Friday 28th November 2008
Many areas of public policy increasingly seek to shape and influence the behaviour of consumers or to empower them to make better choices. For example, at European level, consumer behaviour is central to the debate over nutritional and environmental labelling, sustainable consumption, bank account switching, consumer contract law, alcohol and tobacco policy, energy and mobile telephone regulation. However, much of this policy is implicitly based upon the assumption that individuals are rational, selfish and consistent. Recent insights from behavioural economics question the standard assumptions of neoclassical economics and identify new challenges and opportunities for policy practitioners: if individuals are not perfectly rational and time-consistent, what are the implications for consumer-related policies?
The conference on Behavioural Economics, which took place on 28th November 2008, was designed to bring together researchers, policy-makers and stakeholders to explore these new challenges and identify the next steps. In particular, the conference aimed to bring the research and policymaking communities together, in order to make research more relevant to current policy problems. The conference was thought to help researchers understand the kind of evidence policy-makers need and to make policy-makers aware of the advances of behavioural economics and of the nuances of consumer behaviour. It has generated ideas for new research that could be carried out under the 7th Framework Programme.
The recent literature has identified a number of behavioural anomalies confirming people's limited rationality: default bias
(i.e., the ordering of options influences the choice); framing (the way information if framed matters; in particular, people weigh losses
more heavily than gains); endowment effect (people's value of a good increases once they own it); present bias (people don't like to defer
gratification) and choice overload (more choice can be demotivating and reduce satisfaction), to mention but a few. For more background information,
you may want to read "The Marketplace of Perceptions" (Harvard Magazine, March-April 2006) ,
or the report of the conference on behavioural economics organised by Federal Trade Commission,
or the proceedings of the Roundtable on behavioural economics and public policy,
organised by the Australian Government Productivity Commission.
The conference attracted a large audience from different areas of work and backgrounds. The videos of the conference presentations and discussions are available on the programme page.
The conference presentations and discussions tackled several key questions, among which:
1. Do the insights from behavioural economics call for a more or less interventionist policy to influence consumer behaviour?
2. Are modern, ever more complex markets generating more choice that consumers can cope with?
3. Should policy aim to protect consumers against their own behavioural biases?
4. Are behavioural biases more significant in service markets, especially financial services?
Second conference on Behavioural Economics: Behavioural Economics, so What: Should Policy-Makers Care?
This conference is being organised by the European Commission, DG Health and Consumers
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