We’ve all been there before: you think you could be getting a better interest rate on your current account, but put off the decision to actually do anything about it because it feels too complicated or confusing to compare all the accounts available. Or you aren't really sure if you've just been duped into paying for a mobile phone plan that is superflous to your needs. Or become so overwhelmed by the number of digital cameras out on the market that rather than comparing all the specs, you just buy whichever model you saw a friend using last week...
Confused image from paleoplan.com
There is a growing recognition of the idea that consumers are “real” people, not the wholly self-interested, perfectly intelligent, never procrastinating Homo Economicus. While much of the science and theory are not necessarily new, the appreciation and application of it seems to growing in scale and scope.
The Social Brain Centre here at the RSA has been exploring these views of human nature since the team's inception in 2009, more specifically in regard to behaviour change. And the Behavioural Insights Team, aka the Nudge Unit, has been working to adjust policy with low-cost tweaks based on the behavioural science put forward in Thaler and Sunstein's book, Nudge.
Now it seems that behavioural science is extending its reach into areas of consumer protection.
For example, at their launch event at the LSE in April, the Financial Conduct Authority announced that they will be using concepts of behavioural economics to gain a better understanding of consumers, with the aim of a “fresh approach” to regulation. They say: “[Behavioural economics] will help us to understand problems in financial markets and design more effective remedies to make markets work well for firms and consumers alike.”
In addition, earlier this week the Which? Consumer Insight programme hosted an event to launch a new report entitled Consumer Literacy: Capabilities and the real consumer. This report is expected to be the first of a series which will look at the gap between what an ideal consumer is and what a real consumer is. They have deliberately tried to avoid the language often used in behavioural economics of a 'rational' consumer versus an 'irrational' one.
Which? Surveyed over 5000 people to gauge their consumer literacy across three areas: skills (to recognise cheaper products, calculate basic rates, check receipts), knowledge about consumer rights, and engagement (the propensity to use the skills and knowledge in a meaningful way to get the best product for yourself). Unsurprisingly, and in line with the theories and research of behavioural science, Which? Found that very few people are fully consumer literate, with only 1 in every 250 people scoring in the top 10% of across each of the three areas.
Taken together, these recent events indicate the growing appeal of behavioural science outside of academia. It will be interesting to see how consumer protection is shaped by this greater understanding of behaviour. An awareness of our human nature might not make our decision making much better, but is necessary when designing strategies to help protect us from product suppliers and even ourselves.
Nathalie Spencer is Senior Researcher in the Social Brain Centre. To find out more about our work, please visit the RSA website, read the Social Brain blog, or contact us.