The Consumer Financial Protection Bureau and the Quest for Consumer Comprehension – Lauren Willis

CFPB_Vertical_RGB-300x212The Consumer Financial Protection Bureau and the Quest for Consumer Comprehension (book chapter, April 2017) by Lauren Willis.

I found out about this new strand of work via ASIC. I really liked Willis’ debunking paper The Financial Education Fallacy (2011). Related to the paper I summarize below: Performance-Based Consumer Law (2015) and Performance-Based Remedies: Ordering Firms to Eradicate Their Own Fraud (2017). Perhaps I will dive deeper into one of those in another blog post.


To ensure that consumers understand financial products’ “costs, benefits, and risks,” the Consumer Financial Protection Bureau has been redesigning mandated disclosures, primarily through iterative lab testing. But no matter how well these disclosures perform in experiments, firms will run circles around the disclosures when studies end and marketing begins. To meet the challenge of the dynamic twenty-first-century consumer financial marketplace, the bureau should require firms to demonstrate that a good proportion of their customers understand key pertinent facts about the financial products they buy. Comprehension rules would induce firms to inform consumers and simplify products, tasks that firms are better equipped than the bureau to perform.
[unless otherwise stated, all text below is quoted from the paper]
The bureau [CFPB] must induce firms themselves to promote consumer comprehension:
Demonstrating sufficient customer comprehension could be a precondition firms must meet before enforcing a term or charging a fee, or firms could be sanctioned (or rewarded) for low (or high) demonstrated comprehension levels. In effect, rather than prescriptively regulating the marketing and sales process with mandated disclosures or pursuing firms on an ad hoc ex post basis for unfair, deceptive, and abusive marketing and sales practices, the bureau would monitor firms and incentivize them to minimize customer confusion as the marketing and sales process unfolds over time.
Comprehension rules are a form of performance-based regulation, in that they regulate outputs not inputs.
By moving testing of disclosure from the lab to the field, and trying to stimulate firms to develop creative disclosure methods, the CFPB implicitly acknowledges that:
  1. disclosures that do well in experimental conditions may not work in real-world conditions,
  2. firms are better situated than regulators to innovate to achieve consumer comprehension,
  3. valid, reliable consumer confusion audits are possible.

How might this form of regulation operate in practice?

  1. Measuring the quality of a valued outcome (comprehension) rather than of an input that is often pointless (mandated or pre-approved disclosure);
  2. Assessing actual customer comprehension in the field as conditions change over time, rather than imagining what the “reasonable consumer” would understand or testing consumers in the lab or in single-shot field experiments;
  3. Requiring firms to affirmatively and routinely demonstrate customer understanding, rather than relying on the bureau’s limited resources to examine firm performance ad hoc when problems arise;
  4. Giving firms the flexibility and responsibility to effectively inform their customers about key relevant costs, benefits and risks through whatever means the firms see fit, whether that be education or product simplification, rather than asking regulators to dictate how disclosures and products should be designed.
Certainly comprehension is often neither necessary nor sufficient for good decisions (…) Even knowledgeable consumers make bad decisions, whether as a result of inadequate willpower or decisionmaking biases. (…) many decisions require basic financial knowledge that consumers lack; the effective annual percentage rate (APR) for a credit card account “defies plain language efforts”.
It might well be more cost effective for society to engage in substantive regulation of product design or performance-based regulation of consumer welfare outcomes (e.g. a lender that does not follow the bureau’s underwriting rules can instead demonstrate annually that no more than five percent of its loan portfolio defaulted).


Even without any intent to deceive, firms not only will but must leverage consumer confusion to compete with other firms that deceive customers.
Firms have a bevy of means at their disposal to undermine mandated disclosures’ effectiveness:
  1. By altering the design of the transaction (e.g. banks are adept at sabotaging overdraft disclosures, see When Nudges Fail: Slippery Defaults, Willis, 2013)
  2. Frame consumers’ thought processes long before consumers see a disclosure. Consumers may think they are unaffected, but advertising works (Wood and Poltrack 2015; Lewis and Reiley 2014).
  3. Physically divert attention from disclosures. AT&T designed the envelope, cover letter, and amended contract after extensive “antimarketing” market testing to ensure that most consumers would not open the envelope, or if they did open it, would not read beyond the cover letter (Ting v. AT&T, 319 F.3d 1126, 9th Cir. 2003)
  4. Take proactive steps to ferret out easy marks, vulnerable customers. Savvy firms might use inferred cognitive load, mood, or stress levels to sell consumers products at the very moment when mandated disclosures will be misinterpreted or ignored. Firms can even engage in real-time marketing through Internet and mobile devices to reach consumers at vulnerable moments (Digital Market Manipulation, Calo, 2014).
Like sausage-makers, marketers do not want the public to know how their product is made.

Comprehension rules & customer confusion audits

Comprehension rules would align firms’ goals with the CFPB’s mandate to ensure consumer understanding of financial product costs, benefits, and risks. The effect of successful regulation through comprehension rules would be to bring transactions into closer alignment with consumer expectations.
Firms know a lot about their customers, as they already collect this information for marketing and product development purposes.
The very capacities that modern firms use to market products and defeat mandated disclosures enable them to attain better consumer comprehension more quickly and at a lower cost than regulators. The bureau can try to educate consumers, but nothing beats professional marketers when it comes to sending consumers a message.
Firms are in a better position than regulators to decide when it is worth the cost of educating consumers about complex or unintuitive features and when simplifying products is more cost-effective. Firms might find that educating their customers is so costly that it would be cheaper for firms to directly channel consumers to suitable products.
The bureau would need to remain mindful of firm agility at circumventing disclosure, and guard against firms’ manipulation of customer confusion audit results.


The benchmarks against which firm performance in customer confusion audits ought to be judged depend on which of the bureau’s statutory purposes it is pursuing: transparency, competition, or fairness.
Benchmarks if the goal is:
  • Fairness: the benchmarks would need to be high, perhaps as high as the approximately 85 percent benchmark implicitly used in false advertising cases
  • Competition: the benchmarks might be lower, depending on the firm’s ability to differentiate informed from uninformed consumers.
  • Prevent firms from undermining mandated disclosures: the benchmarks might be set at the comprehension levels the bureau can obtain in its disclosure testing.
  • Increase consumer comprehension from where consumers stand now:
    the benchmark might be set based on industrywide performance.

Benefits of Comprehension Rules

The effect of successful regulation through comprehension rules would be to bring transactions into closer alignment with consumer expectations.

The ultimate direct benefit of comprehension rules is increased consumer decisional autonomy; consumers would get what they think they are getting, not whatever hidden features firms can slip into the transaction.

Empowered choices free of confusion are only possible, and the market is only driven to efficiency, when consumers comprehend the transactions in which they engage.

Today we pretend that individual consumers use disclosures to drive market competition and make welfare-enhancing decisions, but we do not spend the resources needed to realize actual consumer understanding. As a result,  consumers neither discipline the market nor consistently enhance their own welfare.


Verslag Netspar International Pension Workshop 2018

Van 17-19 januari 2018 was de International Pension Workshop ’18 van Netspar. Mijn verslag/samenvatting, vooral in Twitter-draadjes.

Dag 1

Monika Böhnke – Choice in Pensions: Insights from the Swedish Premium Pension System

Opvallend: het default-fonds is het meest riskante. Idee bij opzet was dat dat juist zou stimuleren om te kiezen. Dus niet, ongeveer 1000 Zweden kiezen zelf per jaar.

Hazel BatemanRegulation of information provision for pension choices: Australia and the Netherlands compared

Vooral over onderzoek in Australië. Conclusies: “People are not using pension information as expected” & “Testing should be on real, actual behavior”

Ward Romp  – What drives pension reform measures in the OECD?

Niet heel nuttig voor mijn werk bij de AFM, wel interessant soort onderzoek. Handig overzicht pension reforms Nederland.

Johannes HagenA nudge to quit? The effect of fixed-term pensions on labor supply and retirement choices among older workers

Niet gezien (later wel ppt gekregen), wel interessant sterk effect van nudge voor keuze; als “lump sum in 5 jaar” meer salient, duidelijk weergegeven, dan +30%-punt die dat kiest en effect op werkkeuzes; mensen stoppen eerder met werken (want in 5 jaar hogere maandelijkse uitkering).

Dag 2

Jesper RangvidComparison of pension systems in The Netherlands and Denmark: Shifts from “safe” to “less safe” pensions products

“Given a choice, young males with economic background in cities are more likely to give up guarantee”

Goed punt van discussant: slechts 18% maakt een keuze in Denemarken; waarom dan keuze invoeren?

Raymond MontizaanPension reform: Disentangling the impact on Retirement Behavior and Private Savings

Snelle, harde aanpassing in pensioen leidt tot meerdere problemen; beleidsimplicatie: geleidelijk pensioenveranderingen doorvoeren.


Dag 3

Arthur van SoestPension Communication in the Netherlands and other countries.

DNB onderzoek gebruikt maat voor “objectieve” pensioenkennis: Pension literacy: 3 questions that respondents think they know the answer to (researchers don’t know the right answers). Only “don’t know” is scored as wrong answer. Any other answer is “correct”

Onderzoekers vinden wel relaties tussen pensioencommunicatie en pensioenkennis en actieve pensioenbeslissingen (even kwijt hoe ze dat definieerden), maar zijn zwakke verbanden en vaak niet causaal.


Henriëtte Prast – The Power of Percentage: Quantitative Framing of Pension Income.

Dit is onderzoek dat we als AFM ook gerepliceerd hebben. Zie hier mooie samenvatting op DasKapital:


Paul SmeetsFinancial Incentives Beat Social Norms: A Field Experiment on Retirement information search.

Mooi experiment met 250.000 brieven aan deelnemers pensioenfonds detailhandel

Inspelen op sociale norm werkt niet om meer inlogs te krijgen, kans op VVV-bon wel.


Gregor BeckerCan Digital Information Treatments Intensify the Search for Household Spending Data and Improve Liquidity?

Experiment met 100.000 bankklanten om ze online huishoudboekje te laten gebruiken; leidde bij huishoudens met betalingsproblemen tot gemiddeld €453 meer tegoed op lopende rekening


Tabea Bucher-KoenenFinTech as a solution for rational inattention in individual pension planning?

Nog in ruwe/opstartfase; willen effect van een pensioendashboard testen. Alleen in Duitsland weinig digitale data, daarom handmatig informatie voor 1000 mensen ingevoerd door studenten (à 24 minuten per persoon).

Discussant had mooie link naar onderzoek uit 2016 in UK dat ik nog niet kende: Understanding consumer experience of pension scams a year on from pension freedoms.


Rondom de praatjes had ik ook nog even contact met Marike Knoef. Onderzoek van haar was toen net in FD verschenen Nederlander weet nog altijd weinig van pensioen.

In dat stuk ook de 5 kennisvragen. Twee daarvan komen rechtstreeks uit AFM kennistest weetwatjeweet. Een draadje op Twitter:




Dag 1 Marketing Insights Analytics (#MIE18)

Net als vorig jaar ben ik weer naar het Marketing Insights Evenement (#MIE18) geweest.Een recap van dag 1, woensdag 31 januari 2018.

De officiële titel van MIE18 bevat nu ook Analytics, dus na de verbreding van alleen marktonderzoek naar marketing een verdere stretch. Volledige naam: MIE, The Snowball Effect of Marketing, Insights & Analytics.

Dit was editie 16, en van 600 deelnemers in het Sparta stadion bij de eerste MIE, is het evenement nu gegroeid naar 2500 bezoekers. Ook wordt MIE steeds internationaler, een kwart van de praatjes is in het Engels.

AI or die
De ochtend key-note van Alix Rübsaam ging over Artifical Intelligence: AI or Die: Redefining what it means to be human in the digital age?

Verhaal begint eng (“AI poses existential threat to humanity. We are superf***ed“). Met flair en soepele anekdotes, schetst Rübsaam historisch perspectief van hoe mensen tegen technologie aankeken (Golems, hydrolische pompen). Om hoopvol te eindigen: “AI is only only threat if we define that humanity as computational”.


Voor mijn eerste parallel sessie ging ik naar een verhaal over ANWB en autoverzekeringen. ANWB wil graag ook autoverzekeringen aan leden verkopen.

Robert van Ossenbrugge leidt in, met basale en fundamentele vragen:

Daarom in kaart brengen(onderzoek voor ANWB focust op mentale beschikbaarheid):

  • Fysieke beschikbaarheid (vindbaar Google, in het schap)
  •  Mentale beschikbaarheid
    • Zeggen we juiste dingen? (category entry points)
    • Afzender duidelijk? (distinctive brand assets)

Over Category entry points: grotere merken gekoppeld aan meer category entry points, maar ANWB heft lager daadwerkelijk marktaandeel dan verwacht op basis van mentaal marktaandeel (=aantal geassocieerde category entry points).

Over Distinctive brand assets: logo ANWB scoort in juiste kwadrant, hoge bekendheid en hoge uniciteit (onderscheidend). Andere, nieuwere brand assets blijven nog wat achter (scoren lager op Fame en Uniciteit).

Uitdaging voor ANWB om nu hier mee aan de slag te gaan, ze worden wel geassocieerd met “iets met auto’s”, maar dat leidt niet per se tot meer autoverzekeringverkoop. Ik vond het boeiende onderzoeken en ook verfrissend simpel gebracht, hoewel de technieken en nuances onder de motorkap natuurlijk veel ingewikkelder zijn. Dat is knap.

Duurzaam bankieren voor jongeren
ASN bank en Motivaction spraken op de volgende sessie waar ik was: Hoe verjongen we duurzaam bankieren? Hoe kan ASN nieuwe, jonge klanten trekken, zonder oudere (“progressieve spaarders”) te vervreemden?

Deze case vond ik zelf minder aansprekend; leek vooral te draaien om slimmer jongeren via Facebook te targeten (oa door koppeling met Motivactions Mentality model) om ze naar een duurzaamheidsfestival van ASN te laten komen.

Wel een actuele Fokke & Sukke (stond geloof ik gisteren in NRC);

Moreel kompas

Voor ronde 3 had ik een lastige keuze. Uiteindelijk ben ik niet naar de dataviz presentatie van @PerfecteGrafiek geweest [visualisatie volgtips 1, 2, 3, 4], maar naar de Staat van Marketing en kon ik de zeer interactieve discussies met de zaal volgen.

“Slaat online marketing ons kompas exponentieel vérder uit het lood?” vroeg Max Kohnstamm zich af. Dat is precies een van de vragen die ik samen met een collega ook stel in blogs over digitale marketing op de site van mijn werkgever, de Autoriteit Financiële Markten.

Van Welzen presenteerde consumentenonderzoek naar de (dominantie van bepaalde) hotel/restaurant/thuisbezorgings-platforms. Aardig vond ik de link met de financiële sector en de beloningstransparantie daar.

Een oplossing die Van Welzen en Kohnstamm suggereren, is meer transparantie. Ook al is dat ook niet de silver bullet die alles zal oplossen (“The platform always wins” citeerde Kohnstamm ergens). Een sessie met een mooi inhoudelijk debat en prikkelende stellingnames.


Experimenten bij Wehkamp
Voor ronde 4 nam ik plaats in een zeer goedgevulde grote zaal om te luisteren naar Data-driven experimentation bij Wehkamp door Kevin Swelsen. [hele presentatie]

Mooi uitgangspunt om alle problemen hypothese gedreven en met wetenschappelijke experimenten op te willen lossen, “innovation as a series of scientific experiments“. Kan ik me helemaal in vinden.

Een voorbeeld van een experiment was om aantal retouren te laten dalen. Dat is voor online retailer zo mogelijk een nog belangrijker (winstgevender) doel dan conversie verhogen.

De laatste ronde van mijn #MIE18 bracht me naar Analytics at ING’s mobile banking app door Timothy “ING has the best banking app in the Netherlands” Dieduksman.

Niet geheel verrassend zijn vooral jongeren goed voor de meer dan 1 miljard keer dat de App gebruikt is in 2017. Dieper inzoomen op feature-adoptie leverte interessante inzichten; het duurt ongeveer een jaar App-gebruik voordat iemand op het gemiddelde niveau zit en ongeveer 60% van de features kent/gebruikt.

Na (toch nog) een stukje over dataviz (het werk van Nadieh Bremer, maar dan niet over babynamen maar woorden in terugbetaalverzoeken), eindigde Dieduksman met Factbites, een slimme manier om resultaten en inzichten uit data-analyses te delen met collega’s. Met handige tips voor een goede factbite.

De afsluitende key-note heb ik overgeslagen en ook dag 2 laat ik aan me voorbij gaan. #MIE19 ben ik er weer bij.

[update 2/2/2018] De beoordelingen van alle presentaties zijn bekend. En van sommige presentaties de slides. Paar die me interessant lijken:

Schiedam – S’dam

Net terug van een weekendje weg met Taco naar Schiedam. Of eigenlijk: S’dam.


We zaten in Jeneverlogies en dat was prima. Uitstekend ontbijt ook.


En pal naast het Jenevermuseum.


Als niet-jeneverdrinker vond ik het Nationaal Jenevermuseum toch erg interessant. Zeker de uitleg door de Stoker.


Ook een aardige tentoonstelling met 1001 etiketten:

En een proeverij


Mout voor de miljoenen liters jenever voor de 400 branderijen werd in molens gemalen #nofilter (grauwe dag)


Het Jeneverthema komt overal terug, zoals in de Openbare bibliotheek, gevestigd in de voormalige Korenbeurs


Maar ook in logo van een distilleerderij


Straatbeeld; interessante combinatie…


Zondag naar het Stedelijk museum Schiedam.

How to prove, how to interpret and what to do? Uncertainty experiences of street-level tax officials

January 18th 2018, the VIDE publicatieprijs 2017 will be awarded. My own paper Werkt de wildwestwaarschuwing wel? is one of the nominees. The other nominee is How to prove, how to interpret and what to do? Uncertainty experiences of street-level tax officials by Nadine Raaphorst, published in Public Management Review in 2017 (2016 Impact Factor: 2.293).

Obviously, I can’t really objectively summarize this paper. And the fact that it is qualitative research based on a storytelling method, is also completely opposite to my quantitative bias. However, transcribing 37 stories “about situations they experienced as difficult or complicated” by 17 tax officials, is probably no easy feat and quite some work. And just like my paper, Raaphorst did not study actual behaviour.

This study examines the kind of uncertainties frontline tax officials working with a trust-based inspection approach experience in interacting with citizen-clients. The classical literature on bureaucracy and the street-level bureaucracy literature suggest frontline officials face two kinds of uncertainties: information and interpretation problems. Analysing stories of Dutch frontline tax officials collected through in-depth interviews, this article shows that these two kinds of uncertainty only explain a part of the uncertainties experienced. Respondents also face action problems requiring improvisational judgements. The study furthermore finds that different sources underlie these uncertainties, pointing to possible explanations.

Raaphorst studied Dutch tax officials (Belastingdienst) that have dealings with citizen-clients/entrepeneurs, and who have to implement a trust-based inspection approach (“horizontaal toezicht”, aimed at “collaboration and trust” and “rules and legislation that are vaguer“).

A trade-off is: “such policies may yield more responsive law enforcement and service provision, [but] they could also compromise consistent and fair decision-making, especially when certain types of citizen-clients have better negotiation and communication skills to take control in bureaucratic interactions.”

The paper seeks to solve “the lack of understanding of the kinds, conditions, and consequences of uncertainty at play in frontline work.” This is all the more important in a more uncertain bureaucratic process where “bureaucrats’ actions are increasingly made dependent on their perceptions of citizens in interactions, and to a lesser extent prescribed by formal rules, this leads to a more uncertain bureaucratic process.”

Three types of uncertainty

Apparently, there are two types of uncertainty inexisting literature (information and interpretation) and this study adds a new type; action uncertainty:

These findings underline the importance of social interactions to bureaucratic work and hence to understanding the role of uncertainty in bureaucracy. Whereas public administration literature has pointed to the existence of information uncertainties and interpretation uncertainties this study adds a third kind: action uncertainties.

Because “objective rationality (…) did not reflect organizational reality” as described below, there is a information problem with ‘unknowns’.

[In] the traditional model of bureaucracy (…) bureaucracies are seen as rational organizations that should limit individual bureaucrats’ discretionary powers by setting strict rules and procedures. Technocratic knowledge, embodied in rules, procedures, and policies, is put at the heart of bureaucratic organizations.

On uncertainty as an interpretation problem: “bureaucrats’ discretionary practices are not only informed by organizational classification systems and rules but also by personal judgements regarding clients’ worthiness or deservingness, based on cultural schemes, moral beliefs and values, or certain stereotypes.” So “‘instances'” need to be interpreted, to see “what ‘is really happening’“.

A paragraph on Uncertainty of social interactions rightly states: “Discretion at the frontlines ‘is necessary to respond to the unexpected and to ensure that services are responsive to individual need’” And in the public administration literature apparently “The uncertainty that is inherent to discretion is treated as given.” I don’t know the PA-literature, but this strikes me as strange (see this related discussion Toezichthouders moeten zelf initiatief nemen in discussie over buitenwettelijk toezicht).

Summarizing table

The paper has three tables (one in the appendix), that I tried to integrate into one table. I felt they overlapped a lot and differences were more in lay-out than content. That didn’t help me understand the structure of the paper. The different order in the text on action uncertainty from the tables also confused me a bit.

Table 2 Description of the kinds of uncertainty at play in frontline tax officials’ work, slightly adapted and enriched:

Problem of Proof Standards Control
Contexts in which they occur Lack of evidence to support one’s interpretation [4] Vague rules and legislation [8]

Conflicting norms, values, feelings [4]

Impact of citizen-clients’ private lives and emotions [10]

Negotiations with citizen-clients [3]

Deviations from normality [8]

Difficulties experienced Vague stories of citizen- clients |
Conflicting informational cues |Comprehensibility of account is not clear-cut affair |
Finding proof requires effort and time
Law insufficient as backing |Potential inconsistent decision-making | Far-reaching consequences for citizen-clients On-the-spot reaction | Consequentiality of official’s immediate reaction|Change of inspection approach | Dependence on citizen- client

Numbers in brackets: number of stories (total N=37).

As I understood it, rows with problem and Context are nearly identical to Tabel 1 and Table A1 from the Appendix.

For Interpretation uncertainty, what is called “Vague rules and legislation” in Table 2 is “Determining right decision” in Table 1 (and sometimes “grey area interpretation” or “absence of clear standards about what is right in these instances” in the text).

And “Conflicting norms, values, feelings” in Table 2 is called “Experiencing dilemmas” in Table 1 (or “tension between what one ought to do as a tax official and one’s personal values or ideas about what is appropriate, or one’s feelings of empathy.” in the text). Another nice description of this construct is “this leeway or ‘freedom to struggle’ involves dilemmas between following the law on the one hand and feelings of empathy on the other hand.

The “Impact of citizen-clients’ private lives and emotion” under Action uncertainty is described in the text as “emotional labour” and “when ‘private life’ leaks into the encounter“.

The story illustrating “Negotiations with citizen-clients” where one tax official felt “he has been too open and has given away too much already early in the negotiation” was the most salient and best at describing a construct for me.


Are We Smart Enough to Know How Smart Animals Are?

Humans are not so special as we ourselves think, argues Frans De Waal convincingly in this book. “Less anthropocentric orientation (…) animals should be given a chance to express their natural behavior” (p275) and “proponents of human uniqueness (…) can’t stand the notion of humans as modified apes”. (P268).

De Waal favors the cognition for animals camp above the behaviorists (eg Pavlovian training, skinner boxes).

Many experiments comparing humans to apes are flawed. Young children sit in their mothers lap, whilst apes are separated in cages. Especially hard to correctly test social interactions.

Also, initially, gibbons were considered least intelligent because they performed bad on certain tests. Turned out, they lack fully opposable thumb and had hard time picking up things from flat surface “Only when their hand morphology was taken into account did gibbons pass certian intelligence tests” (p14). And another experimental mistake: “premature denials of mirror self-recognition in elephants based on their reaction to an undersize mirror”. (P157). With elephant-sized mirrors elephants do recognize themselves.

Good blend of anecdotes and hard research; “Subjective feelings won’t get us there. Science goes by hard evidence.” (P234). The painstaking field experiments by biologists/ethologists, observing animal behavior in the wild, is a testament that it is possible but very hard. Humanities should take note, especially Gloria Wekker-like, subjective approaches to “science” (check @RealPeerReview on Twitter for some examples).

P208 Nice story on hiding something for chimps. Similar experiment five years (!) with another chimp, made Socko look at exactly the hiding place from 5 years ago.

P228 Work by Sarah Boysen; chimp Sheba gets to choose between two cups with different amounts of candy. The one Sheba points to is given to another chimp. “Yet unable to overcome her desire for the fuller cup, she never learned to do so [point at smaller cup]”. If cups were rep,sced by numbers, she did choose correctly, consistently pointing to the lower number.

P231: Both macaques (Robert Hampton 2004) and rats (Foote and Crystal 2007) volunteer for tests only when they feel confident, suggesting that they know their own knowledge.

Other cool references:

Sorge 2014 Olfactory exposure to males, including men, causes stress and related analgesia in rodents

Capucin monkeys reject unequal pay

Redonan Bshary on cooperation in fish

Default neglect in attempts at social influence (PNAS)

Zlatev, J. J., Daniels, D. P., Kim, H., & Neale, M. A. (2017). Default neglect in attempts at social influence. Proceedings of the National Academy of Sciences, 114(52), 13643-13648. [pdf | supplemental information] And the link on Open Science Framework (OSF):


Current theories suggest that people understand how to exploit common biases to influence others. However, these predictions have received little empirical attention. We consider a widely studied bias with special policy relevance: the default effect, which is the tendency to choose whichever option is the status quo. We asked participants (including managers, law/business/medical students, and US adults) to nudge others toward selecting a target option by choosing whether to present that target option as the default. In contrast to theoretical predictions, we find that people often fail to understand and/or use defaults to influence others, i.e., they show “default neglect.” First, in one-shot default-setting games, we find that only 50.8% of participants set the target option as the default across 11 samples (n = 2,844), consistent with people not systematically using defaults at all. Second, when participants have multiple opportunities for experience and feedback, they still do not systematically use defaults. Third, we investigate beliefs related to the default effect. People seem to anticipate some mechanisms that drive default effects, yet most people do not believe in the default effect on average, even in cases where they do use defaults. We discuss implications of default neglect for decision making, social influence, and evidence-based policy

Key question in this study was: do people actually understand default nudges
enough to use them strategically?

Experts think so (spoiler alert: they were wrong): In an email survey of members of the Society for Judgment and Decision Making (n =133), the overwhelming majority of experts—90.1%—predicted that people would successfully use defaults to influence others in desired directions. Only 2.3% of experts predicted that people would fail to use defaults altogether.

In the experiments, defaults did work: CMs [Choice Maker] demonstrated a default treatment effect of 25.2 percentage points. That is, the CMs were 25.2 percentage points more likely to choose an option when it was the default than when it was not the default.

3 studies

The authors did three studies:
Yet we find that people acting as CAs [Choice Architects] frequently fail to understand and/or use defaults strategically when trying to influence others’ choices, even when doing so is in their best interest.

  • In study 1, in contrast to both theoretical and expert predictions, we found that only 50.8% of people set the target option as the default, across 11 samples totaling 2,844 participants.
  • In study 2, we found that this default neglect in CA decisions persisted even when people were given multiple opportunities for experience and feedback.
  • In study 3, most CAs revealed incorrect beliefs about how setting a default is likely to affect a CM. Even in cases where CAs were good at systematically using defaults (i.e., in the preselect default game), these decisions did not comport at all with CAs’ beliefs.

Study 1 finds that managers, law/business/medical students, and US adults often fail to understand and/or use defaults, but professionals do score above chance (59%)


Study 2: learning/repeated experiments did not improve the optimal use of defaults

In round 1 (the first round), 33% of CAs used default nudges optimally, which was significantly worse than random chance [2(1)=16:01; p <0:001]. This was qualitatively similar to some of the CA decisions in study 1. In round 20 (the final round), 54% of CAs used default nudges optimally, which was significantly better than round 1 behavior (z =3:89; p <0:001) but not significantly different from random chance [2(1)=0:81; p =0:37].


Study 3: Choice Architect (CA) beliefs about the default effect are far from accurate,

we asked CAs to predict what percentage of CMs would choose each option when it was and was not the default. The difference between these two predictions reveals CAs’ beliefs about the effect of setting a default. (…)

Overall, only 39.6% of CAs had directionally correct beliefs about the default effect (i.e., predicted that more CMs would choose an option if it was the default) (…)

Overall, there was a small but significant positive correlation between whether CAs demonstrated correct beliefs and whether they presented the optimal default (r =0:10; p =0:01).


The fact that many CAs do not even believe that the default effect exists makes it less likely that they would seek out help in their decisions about how to use available tactics.

Long-term incentive structures (…) may help explain why marketing professionals (who are incentivized to influence people toward specific target options) seem to use defaults more than bureaucrats who help develop public policy (who may simply want to give people options that are easy to understand or widely beneficial, without necessarily wanting to influence them toward a specific target option).

Blogs op over digitale marketing

Eind 2017 zijn mijn collega Lars van de Ven en ik begonnen met bloggen over digitale marketing en wat we als toezichthouder daar mee aan moeten.

AFM’ers Lars van de Ven en Wilte Zijlstra houden zich bezig met de impact van digitale marketing op de financiële wereld en het toezicht van de AFM. Lars is werkzaam voor het programmateam Innovatie & Fintech en Wilte werkt bij het Expertisecentrum. In een serie blogs geven zij hun visie op de ontwikkelingen in dit kader.

We hebben nu drie blogs geschreven:

We hebben aardig wat reacties gekregen (meer is altijd welkom! Mail me op wilte.zijlstra [a] In 2018 gaan we onverminderd door, iedere maand een blogpost.

En op twitter mooie reacties van mensen die ik hoog heb zitten.



The Birds and the Bees – What behavioural science and biology teach us about risk

A lecture advertised as Behavioural science and biology have much to teach us about risk obviously gets my attention.

Below my main take aways on this FCA Insights Lecture (FCA = Financial Conduct Authority in the UK, similar to the AFM in the Netherlands, where I work). Read the full Insight Lecture delivered by Chairman of Oxford Risk, Lord Krebs on 22 November, 2017.

Talk in three parts:

  1.  The biology of risk and decision making.
  2.  The role of regulation versus informed choice
  3. How we might use insights from behavioural science to help consumers of financial products to make better choices. Key point in this final section will be that behavioural science has not displaced classical economic models, but has the potential to enrich our understanding of human decision-making.

So what do biologists have to say about risk?

Biological models derive optimality functions from Darwinian fitness, or a proxy for fitness such as food intake, growth rate, or reproductive success. It can be argued that normative economic models, because they have no external reference point equivalent to Darwinian fitness, have an element of circularity: utility is that which is maximised.

‘Expected energy budget rule

Imagine a choice between two food sources, a ‘safe’ option and a ‘risky’ option. Which one is it better for the organism to choose? The theoretical answer depends on the organism’s internal state. (…) You may not think of peas as being very clever, but they have been equipped by natural selection with mechanisms for detecting nutrient concentration in the soil, a valuable survival device. When a seedling germinates, the young roots grow towards parts of the soil that are rich in nutrients.

Dener, E., Kacelnik, A., & Shemesh, H. (2016). Pea plants show risk sensitivity. Current Biology, 26(13), 1763-1767.

I want to make two general comments about this experiment.

First, the fact that pea plants follow the predictions of a normative evolutionary model of risk underscores the point that a brain, or conscious thought, isn’t needed to make the right decisions. Instead, the species we study rely on rules of thumb that have evolved because they yield the right answer, or at least an approximation to it.

Second, understanding these rules of thumb not only helps to gain insight into differences between the optimal solution and observed behaviour, but could also provide a general theory of decision making that complements and enriches the normative optimality models. There’s a parallel here with the difference between normative economic models and the rules that people actually use to make decisions (what Gerd Gigerenzer calls ‘fast and frugal heuristics’).

It’s easy to see how this finding, if applicable to humans, could be used to manipulate people’s choice of investment portfolios. But also “for good”, an example (from Knoef & Brügen, 2017):

Omdat hun default voor de meeste mensen de beste keuze is, heeft NEST de low risk-optie ‘NEST lower growth fund’ genoemd (in plaats van low risk), terwijl de high risk-optie ‘NEST higher risk fund’ heet (in plaats van high return).

The role of the regulator

If the construction of options for investment can be used to steer people’s decisions, should they be regulated, or is it a case of caveat emptor?

[W]hy regulators may not want to ban things. If you have objective criteria and apply them consistently, you may come up with some unintended consequences. Be careful of what you wish for.

My question, for discussion, is whether or not similar externalities of poor financial decisions by consumers could cause “indirect harms” and therefore justify regulation

labelling is not a panacea for the problem of dietary ill health. Again, I pose a question for discussion: are there parallels here for the labelling and marketing of financial products?

I very much agree with this last remark; warnings, disclosure and more inforamtion are (too) often hailed as the solution to everything.

Helping people to make better financial decisions

Encouraging people to make better choices through nudging, and as an alternative to regulation, has been advocated in recent years for many areas of policy, including financial services. The latest annual report from the Behavioural Insights Team or “Nudge Unit”, published last month, lists their key success stories from field scale trials. (…) On the face of it, these are impressive results, although it remains to be seen how long lasting the effects of nudges are. But even if these success stories are sustained, I think nudging has its limits. (…) nudges are likely to be of limited effect, compared with more interventionist measures such as investment in infrastructure, taxation or regulation. (…) No amount of nudging will compensate for lack of investment in the appropriate infrastructure.

we should not see behavioural science as an alternative to traditional optimisation models. In biology the actual mechanisms by which animals or plants make decisions are seen as complementary to, and not alternatives to, normative optimality models.

awareness of how people actually make decisions must be relevant to the ways in which advice is presented.

Beyond nudge

Our view at Oxford Risk is that the best financial decisions will be made by consumers

  • when they have the relevant knowledge,
  • when they are engaged with the decision and
  • when they feel comfortable about making the decision.

The challenge for the financial services industry is to harness the power of behavioural science to help people to make decisions about their money that

  • will give them what they want,
  • what they need and
  • what they understand.