Applying behavioural insights to regulated markets
The insights from behavioural economics are now a well-established feature of public policy debates. In fields from pension saving to healthy eating, they have allowed policy makers to nudge people towards better outcomes in light touch ways. At Citizens Advice, we see real value in these approaches. Too often, policies and processes run against the grain of human nature, and the result is policy interventions that are both ineffective and inefficient.
If there is one area of our work in which see particular value for behavioural insights, it is in our role as consumer champion. Consumers today have to make a bewildering array of decisions on everything from energy suppliers to insurance products. We often turn to rules of thumb to make these judgments, such as ‘shop around for the best price’. It’s no surprise that, in some instances, businesses take advantage of these rules. Fees get hidden until the last minute, refunds are a hassle to claim, and our natural inertia is reinforced by intentionally clunky or time- consuming switching processes. As a result, we make decisions we later regret.
Behavioural economics helps us to think systematically about these problems. And thankfully, the same insights can also help with solutions. Once we know the rules of thumb people use, and the way these rules tend to err, we can design consumer protections that are both less intrusive and more effective. Default options, voluntary caps and trigger points can make choices easier—and therefore keep up competitive pressures on businesses. Meanwhile, other rules, such as long Terms & Conditions that no-one reads, can be made both less burdensome and more impactful for consumers.
We commissioned the Behavioural Insights Team to take examples like this and run with them, asking: how might our approach to consumer policy differ if we took behavioural insights to heart? This report, Applying behavioural insights to regulated markets 12.3 MB , is the result. While this is not the first work on this topic—regulators and companies themselves have thought hard about parts of this question—it is one of the fullest treatments to date. And, as we hoped, the findings are both thought-provoking and, in places, challenging too.
Elisabeth Costa and Katy King, Behavioural Insights Team
The implications of behavioural economics for consumer policy, as in other fields, will be argued over for some time, and there will be differing views on the ideas floated in this report. But the central insight is unarguable: consumer policy works best for both consumers and businesses when it runs with, and not against, the way people actually behave.
We would like to thank the Behavioural Insights Team for responding so creatively to the brief. We hope this report proves to be a timely and helpful contribution to the debate.