Information Asymmetry and the Financial Consumer Protection Policy

다국어 초록 (Multilingual Abstract)

As complex structure of financial products severely limits consumers' understanding and causes an information asymmetry, the need to protect financial consumers has been a target of heated debates. This study designs a game theory-based model and presents that the reason behind an inadequate advisory service by financial institutions is a combination of consumers' poor financial literacy and sellers' abuse of such weakness to pursue their own profits. Our model shows that when there is information asymmetry on both product characteristics and investment preference of financial consumers, having competing companies that offer substitute products is not enough to ensure a proper advisory service. Two measures may be considered to address this issue. The first measure would be voluntary market efforts to strengthen financial consumer's literacy and self-regulatory mechanism. The second measure would be to step up administrative regulations on financial product sellers in both ex-ante and ex-post mechanisms.

참고문헌 (Reference)

1 Benabou, R., "Using privileged information to manipulate markets: insiders, gurus, and credibility" 107 (107): 921-958, 1992

2 Morris, P., "The ombudsmen and consumer protection" Kluwer Law 43-76, 1999

3 Carlin, I., "Legal protection in retail financial markets" 1 (1): 68-108, 2012

4 Hadfield, G., "Information-Based Principles for Rethinking Consumer Protection Policy" 21 (21): 131-169, 1998

5 "Global Financial Stability Report: Market Developments and Issues" International Monetary Fund 2005

6 Hogarth, J., "Financial Education and Economic Development, Paper prepared for presentation at Improving Financial Literacy" OECD 2006

7 Basel Committee on Banking Supervision, "Customer Suitability in the Retail Sale of Financial Products and Services" Bank for International Settlements 2008

8 Benston, G., "Consumer protection as justification for regulating financial-services firms and products" 17 (17): 277-301, 2000

9 Bolton, P., "Conflicts of interest, information provision, and competition in the financial services industry" 85 (85): 297-330, 2007

10 Balatel, A., "Beyond the MiFID: envisioning cognitively suitable and representationally supportive approaches to assessing investment preferences for more informed financial decisions" CAREFIN—Center for Applied Research in Finance, Bocconi University 2013

11 Stocken, C., "An analysis of stock recommendations" 34 (34): 183-203, 2003