1. Behavioral Economics and Consumption Patterns Devesh R. Raval U.S. Federal Trade Commission Mexico City March 15, 2016 The views expressed herein are those of the speaker and do not necessarily represent the views of the Federal Trade Commission or any individual Commissioner

2. What is behavioral economics? Relaxes assumption of “rationality” People have several cognitive biases: –Present-biased –Overconfident –Inattentive

3. How do biases affect consumption? Contracts exploit these biases Immediate vs. Future costs Complicated contracts Hidden fees Consumers may not choose best product –Search and Switching Costs

4. How can a regulator help? Provide more or better information Nudges Restrict contract space

5. How can a regulator help? Provide more or better information Nudges Restrict contract space But: –What happens to prices? –How different are people?