Financial Decisions and Financial Regulation: Three Concepts of Performance Based Regulation

Abstract

This chapter discusses the basis for and concepts of implementing performance based measures in financial regulation. Drawing on empirical methods and insights generated in the field of behavioural economics theoretical considerations and alternative measurements of services and disclosure performance are presented. The behavioural economics inspired approaches rely on control and treatment group comparisons and come in three shapes: concepts analysing existing administrative and financial data counting the number of dominated choices; data from laboratory experiments simulating consumer decisions given provided services counting the frequency of dominated choices and products and data from randomized controlled trials/field experiments in the form of mystery shopper experiments, again counting dominated choices. Each of these are discussed in detail. These concepts differ from alternative, more traditional, approaches that would include economic analysis of incentives and or direct measures of confusion created by information provided, such as computational linguistics, to capture financial service performance.