Making the right moves

Regulators are waking up to the power of behavioural economics to understand markets, assess competition and improve consumer outcomes. Is it a passing fad or will it replace traditional economics?

My article in InterMedia argues for a middle way – that behavioural economics is a valuable new arrow in the quiver of a modern telecoms regulator, one that complements and brings out the best from traditional regulatory frameworks.

Behavioural economics is the incorporation of psychological insights into economics - complementing the traditional economic understanding of markets and adding to the telecoms regulator’s toolbox.

New regulatory approaches using behavioural economics

Incorporating behavioural economics into regulation is an opportunity to improve competition, ensure that consumers are not exploited, and achieve more with less: it opens up the exciting prospect of using less intrusive, less costly regulation.

Behavioural economics has already been used in

• Assessing competition
• Improving communication
• Tackling complexity
• Assessing business models

Better regulation

According to the European Commission, proportionate regulation should be as simple as possible and should not go beyond what is necessary. Before using traditional regulatory tools, regulators should first see if there are behavioural remedies or nudges that would accomplish the same goal.

Evidence-based policy requires that behavioural remedies be thoroughly tested before implementation:

• Does the remedy alleviate the identified theory of consumer harm?
• Does it have unintended consequences, such as stifling competition or innovation?
• Does it help na?ve consumers but hurt sophisticated consumers?

So...

Regulators: Have you first considered behavioural remedies before more interventionist regulation? Have you tested these remedies?

Operators: Have you been proactive in conducting internal behavioural 'audits' of your customer communications and pricing? Have you mitigated any possible concerns?

[1] Tim Hogg (2017), 'Making the right moves', InterMedia, April.