ASIC lifts lid on how choice architecture is influencing consumer behaviour

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The corporate, markets and financial services regulator has published a report explaining how consumer outcomes are being influenced by behavioural science.

The new report by ASIC has revelaed how some companies exploit or ignore the behavioural vulnerabilities of financial consumers by the design of choice architecture for their products.

The findings of a review of more than 100 ASIC reports was published in ASIC’s latest Behavioural Economics Guide 2022. The review of several decades’ worth of reports identified common ‘behavioural levers’ and ‘situational vulnerabilities’ used to influence what consumers did.

“Any financial consumer can find themselves vulnerable to poor outcomes – even the most active, experienced, and confident.

“Some firms have exploited or ignored consumers’ behavioural vulnerabilities in the choice architecture of their products,” ASIC said.

Five clear behavioural levers identified in the review included subtle and overt application of levers that pull social, emotional, ease/difficulty options, timing and framing pressures. 

The research group identified five key, amplified, vulnerabilities that produce complexity for consumers:

1. when broad life events occur, such as divorce, retirement losses, or poor health;
2. when major life decisions coincided with financial ones;
3. lack of access to good and unbiased advice;
4. when processes for recourse were difficult to navigate; and
5. when consumers were ‘in the dark’ about hazards.

The regulator said it hoped the insights will assist firms in designing choice architecture that helps – rather than harms – financial consumers.

Understanding the themes of the article will also go some way to ensuring companies meet their outcomes-based obligations, such as design and distribution obligations, for which ASIC is responsible for enforcing.

“It is also relevant to the product-intervention power for ASIC, which allows ASIC to temporarily intervene in a range of ways to prevent significant consumer detriment and improve consumer outcomes,” the regulator said. 

The ‘Helping or harming? How behavioural levers can influence people’s financial outcomes’ article was authored by Clare Marlin and Madelaine Magi-Prowse from ASIC’s behavioural research and policy unit. That team has contributed to the regulator’s work by assisting frontline public servants with applying behavioural science when identifying, describing, proving and preventing consumer harm.

“Given the nature of its mandate, ASIC has exposed a considerable array of consumer harms and poor outcomes over many years,” Marlin and Magi-Prowse said.

“Our hope is to share further insights with regulators, researchers and firms over time. 

“Together we all share an opportunity to use the lessons of the past and the insights from behavioural science to help – not harm – people’s financial and everyday lives.”

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