1. September 20, 2013 Plenary Session Federal Reserve Bank of Cleveland Policy Summit The Future of (Financial) Disclosure: Applying Insights from (Behavioral) Economics Jonathan Zinman Professor of Economics, Dartmouth College Scientific Director, US Household Finance Initiative poverty-action.org/ushouseholdfinance

2. Focus Today: Potential for Innovation  In content of informational interventions  In delivery: timing, channel, and sender  In “compliance”: enforcement innovations, alternatives (Economics, even without the “behavioral”, offers insights)  In impacts, via testing  Consumer responses to information are hard to predict, context specific Field, randomized testing absolutely critical  Market responses aren’t always easy to predict either! poverty-action.org/ushouseholdfinance

3. What are the stakes?  Helping consumers directly (of course)  Helping consumers indirectly, by improving market efficiency  Disclosure affects:  Tax burdens  *Product costs  Market structure Bank vs. non-bank provision Vertical vs. horizontal integration Larger vs. smaller companies poverty-action.org/ushouseholdfinance

4. Content Innovations Behavioral economics offers some insights, but more in the form of principles/approaches than prescriptions… poverty-action.org/ushouseholdfinance

5. Content Innovations: Some Design Principles  Diagnose: what don’t people know, understand, remember, consider?  Treat: how best communicate that information?  Simplify  Prioritize  “Frame”  Meet people where they’re at Facilitating, nudging more effective than felt change “Smart” (personalized) disclosure  Be humble: we still have a lot to learn  Mixed and limited evidence, especially outside the lab  A premise of behavioral social science is that context matters poverty-action.org/ushouseholdfinance

6. Timing and Channel Innovations  The point-of-sale is often too late to meaningfully affect decisions Search costs Emotion  “Back up” to decision point: a (direct) marketing approach to disclosure Or more broadly to information policy  Engagement/outreach strategies as complement to traditional disclosure  Who delivers? Suppliers Nonprofits, government agencies, infomediaries  Promising results from field tests on Medicare, school choice poverty-action.org/ushouseholdfinance

7. Enforcement Innovations, Alternatives  Enforcement costs limit effectiveness of mandated disclosure in some markets TILA for car loans is good example of this (Stango and Zinman RFS 2011)  Alternatives/complements to traditional approaches: Engagement approach (relying on 3 rd parties) Forensics (machine readable disclosures should help) Two-way communication between consumers and regulators Interventions designed to change equilibrium to voluntary disclosure Applications from other branches of economics E.g. focus on breeding consumer wariness/skepticism poverty-action.org/ushouseholdfinance

8. Testing for Impacts: Why Do you know enough to design an informational intervention?... poverty-action.org/ushouseholdfinance

9. Testing for Impacts: Why  Do you know enough to design an informational intervention? What do you think happened when…  Some behavioral economists worked with an employer to increase 401k contributions among low-saving employees. They tested adding information to simplified enrollment materials that emphasized the high fraction of coworkers who were saving (peer info).  Savings rate fell in one key segment of workforce, unchanged in others poverty-action.org/ushouseholdfinance

10. Testing for Impacts: Why  Do you know enough to design an informational intervention? What do you think happened when…  Some other behavioral economists conducted a lab experiment where some advisors were forced to disclose that their pay structure gave them incentives to give biased advice.  The disclosing advisors gave more-biased advice (moral license)  The advisees did not anticipate this (over-trusting)  Advisees made worse decisions on balance under mandated disclosure poverty-action.org/ushouseholdfinance

11. Testing for Impacts: How  We’re not yet ready to write prescriptions… what should we do? Test, AB-style (randomized-control), in the field  Why isn’t the lab, focus groups sufficient? Context matters Competition for attention Persuasion and distraction Emotion  How to do field testing? Safe harbors for non-governmental players Start small, evaluate, iterate to effectiveness Beta-testing approach to (information) policy More humility, more flexibility, more creativity, more rigor! poverty-action.org/ushouseholdfinance