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The report, The Application of Behavioural Insights to Retail Investor Protection, provides guidance to help regulators better understand the behaviour of retail investors in making financial investment decisions.
The report describes behavioural biases and how they affect retail financial markets. The examples given in the report show how emotions and psychological experiences can influence investment decisions; how a rule of thumb can lead to incorrect beliefs; and how a partial assessment of information can lead to a different decision than a complete assessment.
The report finds that individuals tend to make different decisions when interacting with an online interface as opposed to interacting with a human or relying on print materials.
The report also refers to quantitative and qualitative testing methodologies that regulators use to gather information about the ways in which retail investors may suffer harm. These same methodologies can be used to design and measure the effectiveness of the regulatory response to protect investors and to assess the effectiveness of existing disclosure and other measures.
The report acknowledges that while measures using behavioural insights have the potential to promote informed decision-making, they may not be sufficient to protect retail investors adequately. Accordingly, it is important that regulators continue to impose standards of conduct on investment professionals and regulate the sale of investment products to promote retail investor protection further.