I love behavioral economics, but few people (particularly policy makers) understand it nor can apply it effectively. As a result, the new Consumer Protection agency is badly misaligned with the reality of the world - yet another example of how government interference will yield obtuse results: This paper examines the relationship between behavioral law and economics (BLE) as a policy prescription platform and its influence on the regulations emerging from the Consumer Financial Protection Bureau (CFPB). We show how these regulations are inconsistent with the intent and purpose of improving consumer choices. We further demonstrate that the selective modeling of behavioral bias in the BLE framework causes an overestimation of the ability of regulators, who in actuality use inefficient, heavy-handed rules based on little if any real empirical findings of “consumer irrationality.” Accordingly, the broader lesson on the misapplication of behavioral economics goes beyond the ill-considered policies emerging from the CFPB.
Posted on: Sat, 15 Mar 2014 14:11:37 +0000
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