Some features of financial products consistently cause consumers difficulty, according to a review of international behavioural literature published today by the ESRI. The review identifies specific problems for consumers in credit, investment and insurance markets.
The review, funded by the Central Bank of Ireland, examines evidence from more than 140 international studies in behavioural economics and behavioural finance, mostly conducted within the last five to ten years. It identifies multiple product features that are either poorly understood by many consumers or that generate systematic biases in their decisions.
Specific findings include:
A common theme among the findings is that where financial products have multiple features, consumers struggle to take into account all the attributes that matter for their financial outcomes.
“There has been an increase in the volume of research in this area in recent years and it has become clear that many consumers find modern financial products difficult to deal with,” said Pete Lunn, head of the ESRI’s Behavioural Research Unit. “The evidence suggests a need to keep everyday financial products simple. Where more complex products are available, behavioural research provides methods for testing them to ensure that they can be properly evaluated and understood by the consumers they are designed to attract.”
The review concludes that consideration should be given to a requirement to pre-test some financial products and product features. Such pre-tests might help to ensure that innovative financial products offer genuine value to consumers.
The ESRI works towards a national vision of ‘Informed policy for a better Ireland’. This means producing high-quality analysis to provide robust evidence for policymaking, with the goals of research excellence and policy impact.
The ESRI produces research that contributes to understanding economic and social change in the new international context and that informs public policymaking and civil society in Ireland.