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Restoring Rational Choice: The Challenge of Consumer Financial Regulation

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  • John Y. Campbell

Abstract

This lecture considers the case for consumer financial regulation in an environment where many households lack the knowledge to manage their financial affairs effectively. The lecture argues that financial ignorance is pervasive and unsurprising given the complexity of modern financial products, and that it contributes meaningfully to the evolution of wealth inequality. The lecture uses a stylized model to discuss the welfare economics of paternalistic intervention in financial markets, and discusses several specific examples including asset allocation in retirement savings, fees for unsecured short-term borrowing, and reverse mortgages.

Suggested Citation

  • John Y. Campbell, 2016. "Restoring Rational Choice: The Challenge of Consumer Financial Regulation," American Economic Review, American Economic Association, vol. 106(5), pages 1-30, May.
  • Handle: RePEc:aea:aecrev:v:106:y:2016:i:5:p:1-30
    Note: DOI: 10.1257/aer.p20161127
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    2. Kuhnen, Camelia M. & Miu, Andrei C., 2017. "Socioeconomic status and learning from financial information," Journal of Financial Economics, Elsevier, vol. 124(2), pages 349-372.
    3. Perry, Edward D. & Hennessy, David A. & Moschini, GianCarlo, 2019. "Product concentration and usage: Behavioral effects in the glyphosate market," Journal of Economic Behavior & Organization, Elsevier, vol. 158(C), pages 543-559.
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    6. Olkhov, Victor, 2018. "Economic and Financial Transactions Govern Business Cycles," MPRA Paper 93269, University Library of Munich, Germany.
    7. Victor Olkhov, 2018. "Econophysics Beyond General Equilibrium: the Business Cycle Model," Papers 1804.04721, arXiv.org.
    8. Magnus Dahlquist & Ofer Setty & Roine Vestman, 2018. "On the Asset Allocation of a Default Pension Fund," Journal of Finance, American Finance Association, vol. 73(4), pages 1893-1936, August.
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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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