WP 2020-12 Do No Harm? The Welfare Consequences of Behavioural Interventions
AUTHORS: Glenn Harrison, Karlijn Morsink, and Mark Schneider
ABSTRACT: The rapid expansion of access to finance, low levels of financial literacy, and increasing complexity of financial products, raises serious concerns about the extent to which consumers are able to make financial decisions that increase consumer welfare. We evaluate the consumer welfare implications of a wide range of behavioural interventions that are typically used in the promotion of financial products. Based on laboratory experiments where subjects make risky choices, we estimate subject’s individual risk preferences, and then randomly assign subjects to behavioural interventions before they make insurance purchase decisions. We estimate the expected consumer surplus gained or foregone from observed take-up decisions and compare these across the intervention arms. We show that while our treatments typically increase take-up on average, they reduce consumer welfare. Allowing individuals to self-select interventions, or targeting specific interventions to specific sub-groups, shows potential for welfare improvements.