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Behavioural Insights


Regulators and Behavioural Biases

Behavioural insights recognize how people actually behave versus traditional economic and market theory of people as rational actors. People are:

  • influenced by readily-made information, whether that information is novel or relevant, and whether it automatically generates good or bad feelings;
  • making decisions in the moment, as many people prefer to continue with their current behaviour and often do not consider the future impact of their choices;
  • poor predictors of future behavior and are subject to people's distorted memories; 
  • affected by physiological conditions and emotional states;
  • shaped by social norms and expectations (such as trust, reciprocity and fairness) and social emotions (such shame or empathy), and are susceptible to social influences (such as peer pressure); and
  • affected by social biases and mental models, such as stereotypes.

(Source: OSC Investor Office Behavioural Insights report)

The chart below is an example of an investor "emotional rollercoaster" and how it can impact investment decisions:

(Source: Investopedia)

Regulators and other authorities are using the insights provided by these disciplines to learn more about how:

  • consumers make choices and how their decisions and behaviour affect retail market outcome;
  • financial professionals interact with retail customers, and the impact that their incentives, information and various other factors have on consumer behaviour; and
  • regulations and policies have intended and unintended impacts on both of these groups.

(Source: OSC Investor Office Behavioural Insights report)

IFIC and BEworks publish report on effective disclosure 

  • As regulators aim to improve investor outcomes with initiatives such as the client-focused reforms, measuring the success of regulation already in place can identify areas for improvement. A new report from the Investment Funds Institute of Canada (IFIC) and BEworks sheds light on the success of CRM2 disclosure and offers suggestions for better investor outcomes.