Applying Behavioral Insights in Consumer Protection Policy

This Focus Note presents emerging evidence on selected behavioral biases relevant to financial consumer protection, their consequences, and how market conduct regulation and other measures might best reduce abuse and produce better services and ultimately better outcomes for consumers. It also proposes specific ways to incorporate insights from behavioral research into policy-making and implementation of consumer protection regulation and supervision.

The Focus Note explores how behavioral research can offer important tools for effective policy-making in four priority consumer protection topics that are relevant in virtually all settings, but have specific implications in base-of-the-pyramid settings: (1) disclosure, transparency, and product choice; (2) complaints handling and recourse; (3) credit market regulation and debt stress; and (4) fair treatment. Each of the four sections reviews emerging evidence and experience from behavioral research and offers specific advice for policy and regulation deriving from these behavioral insights (although the current level of knowledge varies considerably across these topics). The note closes with reflections on consumer protection-related priorities and challenges in EMDEs that would benefit from further applied behavioral research and field experimentation.