Behavioral Economics and Consumer Finance Working Group

Other External Scholars:
Internal Appropriation, Russell Sage Foundation
Project Date:
Nov 2009
Award Amount:
Project Programs:
Behavioral Economics

Standard economic approaches to the regulation of retail finance assume that consumers are capable of understanding the terms of financial contracts and choosing only those that maximize their self-interest. On this assumption, the regulatory burden is largely satisfied by mandating full disclosure, as the Truth in Lending Act has long required. This conceptual framework provided an adequate approximation to consumer behavior when retail financial markets were far simpler than they are today, but the recent acceleration of innovation in retail credit markets confronts consumers with a widening array of choices among financial products, increasing their complexity significantly and making consumers’ decisions much more perilous. Abundant evidence of flawed consumer decision-making in the recent sub-prime mortgage debacle is just one example of many indicating the potential value of exploring an analytic framework that entertains the possibility of widespread, systematic consumer error and examines its implications for regulatory design.

With support from Russell Sage Foundation and a matching award from the Alfred P. Sloan Foundation, RSF has developed a Working Group on Consumer Finance whose mandate is to explore new lines of behavioral economic research on consumer decision-making with the aim of improving the design of regulatory strategies in retail financial markets. In September 2009, an interdisciplinary group of twenty-three economists, cognitive psychologists, and legal scholars agreed to join the working group and attended an introductory meeting at the Foundation in December 2009. Throughout 2010, the working group has submitted proposals for exploratory projects, which were evaluated by an Advisory Committee comprising Richard Freeman of Harvard, Christine Jolls of Yale Law School, Roger Noll of Stanford, John Reed, former Citigroup CEO, and RSF’s Richard Thaler, who has agreed to represent the RSF Board on the Advisory Committee. Working group members submit either individual or joint research proposals for consideration by either RSF or the Sloan Foundation.

Thomas Baker, University of Pennsylvania Law School
Michael Barr, University of Michigan Law School
Shlomo Benartzi, Anderson School of Management, UCLA
Markus K. Brunnermeier, Princeton University
John Campbell, Harvard University
Daniel Carpenter, Harvard University
Stefano Della Vigna, University of California, Berkeley
Howell E. Jackson, Harvard Law School
Eric J. Johnson, Columbia Business School
David Laibson, Harvard University
John G. Lynch, Leeds School of Business, University of Colorado at Boulder
Brigitte C. Madrian, Kennedy School of Government, Harvard University
Sendhil Mullainathan, Harvard University
John W. Payne, Fuqua School of Business, Duke University
Antoinette Schoar, Sloan School of Management, MIT
Eldar Shafir, Princeton University
Suzanne Shu, Anderson School of Management, UCLA
Paige Marta Skiba, Vanderbilt University Law School
Nicholas S. Souleles, Wharton School, University of Pennsylvania
Justin Sydnor, Case Western Reserve
Jeremy Tobacman, Wharton School, University of Pennsylvania
Peter Tufano, Harvard Business School
Jonathan Zinman, Dartmouth College

For more information on the working group's current projects, click here.


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