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
What is behavioral economics?
• Relaxes assumption of “rationality”
• People have several cognitive biases:
– Present-biased
– Overconfident
– Inattentive
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
How can a regulator help?
• Provide more or better information
• Nudges
• Restrict contract space
How can a regulator help?
• Provide more or better information
• Nudges
• Restrict contract space
• But:
– What happens to prices?
– How different are people?