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Tuesday, August 23, 2016

It’s Time to Bring More Realistic Models of Human Behavior into Economic Policy and Regulation

David Halpern at Bank Underground:

It’s time to bring more realistic models of human behaviour into economic policy and regulation: The Centre for Central Banking Studies recently hosted their annual Chief Economists Workshop, whose theme was “What can policymakers learn from other disciplines”.  In this guest post, one of the keynote speakers at the event, David Halpern, CEO of the Behavioural Insights Team, argues that insights from behavior science can improve the design and effectiveness of economic policy interventions.

Behavior science has had major impacts on policy in recent years. Introducing a more realistic model of human behavior – to replace the ‘rational’ utility-maximizer – has enabled policymakers to boost savings; increase tax payments; encourage healthier choices; reduce energy consumption; boost educational attendance; reduce crime; and increase charitable giving. But there remain important areas where its potential has yet to be realized, including macroeconomic policy and large areas of regulatory practice. Businesses, consumers, and even regulators are subject to similar systematic biases to other humans. These include overconfidence; being overly influenced by what others are doing; and being influenced by irrelevant information. The good news is that behavioral science offers the prospect of helping regulators address some of their most pressing issues. This includes: anticipating and addressing ‘animal spirits’ that drive bubbles or sentiment-driven slowdowns; reducing corrupt market practices; and encouraging financial products that are comprehensible to humans. ...[continue]...

    Posted by on Tuesday, August 23, 2016 at 03:41 PM in Economics, Regulation | Permalink  Comments (17)


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