The FCA has published a speech given by Peter Andrews, FCA Chief Economist, on behavioural finance. In his speech, Mr Andrews argues that policy makers can better answer certain questions by adopting a ‘multi-perspective’ approach and by blending traditional economic expertise with insights from other fields and drawing on developments in areas like machine learning and eventually neuroscience.
Points of interest in the speech include the following:
- to make markets work well, regulators need to understand all material drivers, including behavioral drivers and understand how to improve them;
- economics serves as a critical discipline for improving regulatory policy and is unique in its ability to make markets work well;
- regulators need to use disciplines beyond economics, for example to ensure the legitimacy and legality of their actions;
- economics can be thought of as a science of decision making by economic agents and of the markets that result from their decisions. Regulation occurs when the body politic does not like aspects of these markets, but prefers to change the markets rather than supplant them with state actors. As a result, regulation can be thought of as a science of understanding why markets are failing to meet expectations and of how to change the decisions of economic agents so that the markets work well.
View FCA speech on behavioural finance, 25 January 2017