Introduction
My name is Elena and I’m a second year PhD student at the
University of Manchester School of Law. I research the ways in which the ideas of how people think
and make decisions impact regulation of banks and banks’ handling of risk. This
is an important matter because banks have a significant place in the economies
of most countries, and their behaviour is key to the economic and financial
welfare of society.
How I got here
I completed a 4-year law degree in Russia, after which I
decided to continue my education in the UK. After a law conversion course (GDL)
I enrolled on an International Business and Commercial Law Masters programme at
the University of Manchester. I was particularly attracted to the financial
regulation module because of the enormous impact financial services have on
society – the crisis of 2008 being a stark example. One of the lectures
included a small bit about behavioural economics – a study of how our
psychological traits influence our purchasing, investing, and other economic
decisions. I thought that that was a fascinating topic – and after reading more
about it, decided to do a PhD on it even though I had never considered becoming
a researcher before.
In Depth
To make any (not necessarily economic) decisions, our brain
needs to process large amounts of information in a short amount of time.
Processing all of it in a comprehensive manner would require a lot of mental
effort. Considering the amount of decisions we make on a daily basis, if every
one of them required a lot of time and effort we would not be able to function
normally. To rectify that, our brain developed thought patterns that help us to
process information quicker. One of those thought patterns is called
‘availability heuristic’. When thinking about a certain topic or the
probability of an event happening, our mind immediately refers to the most
prominent belief or a vivid piece of information in our memory. This can cause
a mistake in judgement. For example, people start worrying about a possible
earthquake a lot more if they recently saw an earthquake report in the media.
Another example is people estimating the crime rate in the area a lot higher
after seeing a murder report on TV. And these are just a couple of examples – there are
many thought patterns, or heuristics, that make our decision-making easier but
also make us make mistakes along the way.
For a large part of the 20
th century, the common
academic opinion was that people tend to be rational, process all available
information in a comprehensive way, and only make the most beneficial decisions
for themselves. This approach became popular with governments as well,
particularly in the US and the UK. This view resulted in designing policies and
regulations that were aimed at those perfectly rational individuals. When
confronted with human irrationality, government regulations and policies failed
because people did not act as they were expected to. This was a part of the
reason for the 2008 crisis.
Now that academic and government circles have largely
accepted inherent human irrationality, policies can be adjusted to reflect the
reality of human behaviour. In some areas – for example, consumer protection –
there is a lot of progress. But others, such as financial regulation, require a
lot of modification to reflect the true nature of human decision-making. My
research aims to make regulation of banks more effective by designing a
behavioural framework of board-level financial decision-making that can be used
as a policy foundation.
Going Further
I enjoy my research because I find
learning about how humans make decisions, and how the way our brain works
influences the law, fascinating. Here are some interesting websites where you
can learn more about this area:
https://www.behavioraleconomics.com/introduction-to-be/
- a comprehensive introduction to behavioural economics, including the primary
research in the field.
https://hbr.org/2009/07/the-end-of-rational-economics
- a Harvard Business Review article explaining the role of the presumption of
rationality played in economics.
https://www.ft.com/content/9d7d31a4-aea8-11e3-aaa6-00144feab7de
- a Financial Times article on applications of behavioural insights in public
policy.
http://www.behaviouralinsights.co.uk
- Behavioural Insights Team’s website. It’s a social purpose company partly
owned by the UK government that is dedicated to devising ways to apply the
insights of behavioural science to public policy.
http://nudges.org
- a blog about choice architecture.
Introduction
Hi,
my name is Max and I am a PhD student at the University of Manchester School of
Law. I have been a university student for the past 6 years now and I have
really enjoyed my experience. University provides you with the opportunity of
learning new things, meeting new people, experiencing a new environment, and
finding what it is you want to do in life. For me, particularly the last
question has always been difficult: it took me a long time to realise what I
wanted to do in life, but pursuing a masters degree after my undergraduate
degree gave me an idea. I decided to do research in financial services
regulation. I will give you an idea of what this entails. It’s all about money.
In Depth
Financial
services significantly affect all members of society. You all use money to pay
for different things, such as clothes, shoes, sweets, books etc. If it wasn’t
for the financial services industry, money wouldn’t be readily available in the
form that we use it today. Let me give you an example:
I
imagine that some of you have bank accounts in which you can place your money.
You can save money in your bank account and later withdraw it if you decide to
spend it. This is referred to as a ‘deposit’, as you deposit your money in your
bank account. Your bank can then use this money to create loans to give out to
different people. A loan is simply an agreement between a bank and an
individual or a company. The bank gives the individual a sum of money and the
individual agrees to pay the money back over a certain period of time. For the
bank to benefit from this transaction, the individual is required to pay an
additional sum of money over the time period. It is up to the individual to
decide what to do with the money they receive. They can spend it on clothes,
shoes, sweets, books, or something substantially bigger like a car or a house.
This bank, therefore, made money readily available to the individual. The money
that you deposited is also still available to you. You can withdraw it at any
time. All banks put together make up the financial services industry. They are
an important part of the money available to us. They significantly influence
how money is readily available to all members of society.
This
seems like a good thing doesn’t it? Sadly, however, this system comes with its
problems. Consider this: what if the individual is unable to repay their loan
within the time period agreed upon? What if the bank gives out so many loans
that there is no money left for you to withdraw when you want to? How does the
bank decide who is suitable to receive a loan? Does the bank use any other
means to finance its loans? All of these questions are addressed in financial
services regulation. Research in this area essentially tries to make the financial
services industry reliable and stable so that money is as readily available as
described above. Many of the issues get very complex. It can be very difficult
for researchers to keep up with everything that happens in the financial
services industry. This is precisely why I believe this to be an interesting
research area. New developments arise constantly that require addressing.
Different researchers come up with different ways of addressing these issues. I
have found myself able to add my own thoughts to this interesting area. It is a
very rewarding experience.
Going
further
Here is a YouTube link to an interesting explanation of
banking – https://www.youtube.com/watch?v=CqD3hnjZBTM