It is always good to hear policymakers talk about psychology and behavioral economics.
RBI Dep Gov. HR Khan gives this nice speech on the topic. He covers how certain asopects of behavior lead to market movements, market anomalies etc. The summary is:
In the mainstream framework, all of us would be individuals maximizing utility to one’s self irrespective of the utility of others around us. We do, however, care about the welfare and consumption of people around us, i.e., our family and friends. Even when we move away from the close circle of family and friends, we do not necessarily always act in self centered ways.
In contrast, as was evident during the recent crisis in the financial markets, finance and economics were being practised by set of people who had a totally different mind-set, often conditioned for self-interest and greed. They were more mechanical in nature, probably due to the fact they specialized in science and technology and with less or no inputs from humanities during their course of education. They had thus no compunction in mis-selling the products to unsophisticated investors/borrowers, thereby sowing seeds of disaster for the households and the economy. This, however, does not absolve them of the unethical behaviour leading to selfish gains at the cost of deeper structural damages to the system and harmful social consequences arising out of irresponsible financial behaviour as we have seen in the recent financial crisis. Hence, there could be a case for conditioning of all those who join finance professions by way of value based education and socially relevant experiences during their college days.
To sum up, all of us could use the findings of behavioral economics in our daily lives as well as in policy making. The important lesson of life is that we should not evolve into insensitive individuals who care only for short term monetary gains by putting at stake ethics and moral values, thereby disrupting the financial system and causing huge social and economic damages. Hence, educational institutions like yours should play an important role in creating human capabilities which are conditioned by individual morality and social ethics aimed at responsible financial behaviour. With this I intend to conclude and hope that this important seminar will highlight and throw up interesting ideas for policy makers and practioners.