AFM & consumer behaviour
Behavioural insights show that consumers only act rationally to a limited extent. The AFM takes these insights into account in order to align its attention and interventions with the actual behaviour of consumers. We assess how firms respond to psychological mechanisms in the decision-making processes of consumers, encourage them to apply behavioural insights to the advantage of consumers and to look for more effective interventions.
The AFM also applies knowledge about consumer financial decision making to her conduct supervision and risk assessments.
The application of behavioural insights
The amount of research on decision making behaviour is ever increasing. As a result, our understanding of the limitations of traditional interventions is becoming better and better. It appears that merely providing more information to increase financial literacy, or showing warnings to increase awareness, is not always sufficient in order to accomplish the desired behavioural change. Additional measures are often required in order to ensure that consumers make more appropriate decisions.
Many decisions are taken intuitively and are strongly influenced, or nudged, by the way in which choices are presented. ‘Evil nudges’ direct consumers towards decisions that are not in their best interest. For instance, when firms offer the lowest monthly repayment amount for a loan by default. Examples of ways in which consumers’ interests are appropriately considered in the design of choice options, are automatic retirement saving enrolment or the visualisation of most important information in graphs. The focus of our conduct supervision is broadened to include the choice architecture of firms. We look at the way in which information is presented, and the way in which consumers are being led through decision making processes, in order to improve the effectiveness of our interventions and consumer outcomes.
The application of behavioural insights in supervision is still being developed. In order to develop our approach effectively and quickly, we invite firms, consumer organisations, regulators, supervisors and scientists to contribute their ideas related to this topic. Their input will eventually contribute to a situation in which consumers take decisions that are in their best interests, both in the short and long term. To this end, we have started conducting experiments to find out what does and what does not work. We wish to expand these efforts and our cooperation with firms and scientists in the future.