Behavioural economics provides a useful framework for understanding the decision-making process in financial decisions, with education, economic status, and economic environment playing a role in financial behaviour in everyday life and over time.
A research team has been developed by the UCD-AIB Professor in Behavioural Economics, a postdoctoral fellowship funded by the AIB investment, but now also a full team of externally and internally funded PhD students, postdoctoral researchers, and research assistants. The studies are led by Professor Liam Delaney and Dr. Till Weber but also draw from other people within the research and student group where necessary and appropriate. Research covers five broad areas including preferences, consumer decision making, student financial literacy, the role of information disclosure in engagement with long-term risk products, employee engagement, developing an ethical framework to improve consumer outcomes and bank risk culture using behavioural economics ideas, and other topics.
Financial Behaviour Over the Lifespan:
Problems of self control have been proposed as a key reason to explain low pension saving rates, yet evidence remains scarce. Professor Delaney is joined by Dr. Leonhard Lades, Dr. Mark Egan and Dr Michael Daly in a series of projects to examine financial behaviour throughout life. The study puts forward the analysis of data from 14,223 individuals from two nationally-representative British cohorts. It is found that childhood self-control can predict pension participation up to four decades later. The results suggest that a 1 standard deviation increase in self-control predicts a 4-5 percentage point higher probability of having a pension. Mediation analysis found that about 50-60% of this association is explained by the contribution of self-control to a range of factors (e.g. education, economic status, home-ownership), which are associated with pension uptake throughout adulthood. See here for more information.
Financial Behaviour in Everyday life:
Professor Delaney is joined by Dr. Leonhard Lades in testing whether experimentally elicited present bias predicts self‐control problems in everyday life. The paper measures present bias by using a standard incentivized delay discounting task and everyday self‐control by using the day reconstruction method (DRM). Because this is the first study to measure everyday self‐control by using the DRM, it also validates the method by showing that its data replicates key results from the seminal Everyday Temptation Study. They find that present bias does not predict everyday self‐control. This points to a distinction between decreasing impatience (as measured in delay discounting tasks) and visceral influences (as occurring in everyday life) as determinants of self‐control problems. They argue that decision making research can benefit from the DRM as a cost‐effective tool that complements lab and field experiments to better understand economic preference measures and their correlates in everyday life decision making. See here for more information
Scottish Government Taskforce
Professor Delaney has worked with the Scottish Government on a Consumers and Markets Taskforce group which aims to provide Scottish Ministers with strategic advice on priorities and actions relating to consumer and market issues in Scotland, promoting a culture of strong partnership, intelligence sharing and constructive challenge. The taskforce aims to provide oversight on the development and delivery of consumer and competition policy that puts consumers first and improves outcomes for consumers and businesses in Scotland. It also aims to provide a forum to evaluate evidence, disseminate best practice, develop new and innovative approaches to represent and tackle the most persistent and detrimental consumer issues. The taskforce prioritises current and emerging consumer market issues based on agreed criteria, agrees on an annual basis a number of priority issues for action, identifies the outcomes it will achieve and how these will be measured. It establishes an appropriate mechanism to engage with relevant stakeholders and experts to develop and implement a programme of work around each priority issue. It oversees the progress of work on identified priorities while also ensuring any new or emerging issues are considered and prioritised as needed. Finally, it reports on an annual basis on the outcome of its work and future identified priorities. See here for more information.
Mental health and financial outcomes
Professor Liam Delaney is joined by Dr. Christopher Boyce and Dr. Alex Wood in looking at the interaction between the Great Recession and subjective well-being, and in particular how the life satisfaction of people living in the United Kingdom changed following the financial crisis. Whilst the financial crisis of 2007/08 precipitated a severe global economic downturn, in the United Kingdom this period has been marked by limited change in national indicators of subjective well-being. The authors assessed the life satisfaction change in response to the Great Recession in a sample of British adults (N = 8,661). The first shows that on average the life satisfaction change across the sample was limited. However, average effects may mask substantial amounts of heterogeneity in the data. They therefore explore beyond this average effect to determine whether there were disproportionate changes (losses and gains) in life satisfaction in key sub-groups of the population. They found that individuals experiencing unemployment, who lost income, were sick or disabled, experienced the greatest well-being reductions. Contrastingly the life satisfaction of many individuals did not greatly change following the Great Recession and for some it may have even improved. Their work highlights vulnerable groups that may need additional help during recession periods and also cautions against the over reliance on average measures of well-being. See here for more information.