The CFPB Behavioral Econ Symposium Is Another Good Sign For ConsumersOctober 8, 2019
The field of behavioral economics was unfairly tainted in the founding days of the Consumer Financial Protection Bureau, thanks largely to a push to use government power to restrict consumers’ financial choices.
Certainly insights from behavioral economics can be used to push consumers toward making certain choices, but that’s not the main goal of behavioral econ. Its primary aim is simply to better understand how and why people make decisions. Setting the behavioral field’s blemished reputation aside, it should be obvious that increasing our understanding of consumer behavior is a laudable goal for economists.
That was the main point of most of the participants in last week’s CFPB symposium on behavioral economics. The symposium was part of the bureau’s broader effort to engage experts in various fields on legal and policy issues. This effort is also a worthy goal, as is the agency’s bid to reassure the public that it does not want to overstep its authority and regulate markets simply because it can.
As CFPB Director Kathy Kraninger told participants: “Most fundamentally, the bureau is guided by the objectives Congress set forth in our statute: ensuring that all consumers have access to markets for consumer financial products and services that are fair, transparent, and competitive.”
Congress gave the bureau a great deal of discretion, so it is refreshing to hear the director say:
“To effectively achieve intended policy outcomes, agencies should be able to articulate good reasons for what they do, and those reasons should rest on solid evidence. This includes whether the benefits of the proposed action justify the costs. Indeed, to formulate good policy a substantive analysis and estimation of costs and benefits—both direct and indirect — must be conducted.”
Deputy Director Brian Johnson added:
“When articulating and implementing public policy, there is general agreement that a primary motivation for regulation is to address market failure. And it cannot be stressed enough that demonstrating a market failure requires more than just general notions of incomplete or asymmetric information.”
Johnson’s words also highlight why the behavioral econ symposium is such a positive development.
Some critics of the Bureau have long worried that the agency might use behavioral econ principles to “nudge” consumers toward certain choices, much like a central planner would in a command-and-control economy. And they have had good reason to be anxious.
Oren Bar-Gil and Elizabeth Warren, two architects of the bureau, argued that federal bureaucrats should nudge consumers because they suffer from “cognitive limitations” and because their “learning is imperfect.” But this view is not inherent to behavioral…