The FCA is interested in behavioural economics as it believes it can help the regulator understand the mistakes consumers make, how firms respond to these mistakes, how this affects competition, and what interventions it might consider.
The first paper focuses on how consumers choose and use financial products and how behavioural biases can lead to firms competing in ways that are not in the interests of consumers.
The second explores how best to encourage consumers to respond to customer contact letters. The papers are the first in the FCA’s occasional paper series.
Martin Wheatley, FCA chief executive, said: “One of the most significant challenges for modern financial regulators and financial services alike is to recognise that we operate within a very human environment.
“A fallible world – not just of ratios and complex models but also responses, sometimes flawed, that behavioural economics helps us understand.
“Regulators have a choice as to how they handle these kind of challenges. There is a question of how a regulator navigates the balance of power between consumer and provider.”
