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w19: Case 5 – Behavioural economics II /2548

>> Download and complete the worksheet.

  • Read at least the primary document below and answer the questions on the worksheet.

Primary reading

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

Note: As this is a fairly lengthy document (52 pages plus bibliography), 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 BIT makes for using behavioural economics as the basis for designing regulation of consumer markets. What is an ‘internality’?
    [ see Executive summary, section 1  (pp8-12) ]
  2. What interactions might there be between ‘behavioural market failure’ (and the policy responses to it) and ‘traditional’ market failure?
    [ see Executive summary, section 1  (pp8-12) ]
  3. Select two behavioural biases from the first seven listed in section 2 (A–G) and, for each, explain its impact on consumer behaviour, using examples, and outline the regulatory response(s).
    [ see section 2 (pp13-26) and Appendix A (pp47-51) ]
  4. What is the significance of a ‘scarcity mindset’ in terms of consumer decision-making and what regulatory conclusions does the BIT draw in relation to it?
    [ see section 2 (pp27-29) and Appendix A (p52) ]

Background reading

** Erta, K et al (2013), Applying behavioural economics at the Financial Conduct Authority, FCA, April

* 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 the policy interventions of market regulators always be aimed at creating competitive markets and making consumers act like rational economic agents?