World leading behavioural economist – setting the agenda with Professor Cass R. Sunstein

HDY is proud to have recently hosted Professor Cass R. Sunstein, the Robert Walmsley University Professor at Harvard and former Administrator of the White House Office of Information and Regulatory Affairs.

On 23 November, Professor Sunstein joined a gathering of senior banking executives and counsel at HDY to speak on behavioural economics, and the application of 'nudging' in the financial services sector.

He discussed common investor mistakes, such as availability heuristics, unrealistic optimism, myopia, overconfidence, loss aversion and herd behaviour. Professor Sunstein had 4 key words for making choice architecture more likely to produce good decisions: automatic, simple, intuitive and meaningful.

To illustrate his point, Professor Sunstein used a few examples:

  • People may make poor investment decisions because they take a myopic or short term view - but make better decisions if they must discuss with an advisor before trading
  • A comprehensible home energy report, particularly when coupled with information that a household uses more energy than average, is more effective at reducing energy use than a significant price increase
  • People eat a healthier meal at a cafeteria if presented with healthier foods ahead of less healthy options

Professor Sunstein’s address at HDY followed his earlier keynote speach at the HC Coombs Forum Public Policy Conference at ANU. At this conference, Assistant Cabinet Secretary Scott Ryan announced that the Government will establish a Behavioural Economics Team of the Australian Government - to be known as BETA and housed inside the Department of the Prime Minister and Cabinet.

BETA will be headed by Professor Michael Hiscox of Harvard University. In establishing BETA, specific reference was made to the 'nudge' approach to policy which has been adopted with vigour in the US since 2008 after Professors Sunstein and Thaler published their bestseller, Nudge.

At the launch, Assistant Cabinet Secretary Scott Ryan said he found this area of research "fascinating" and "behavioural sciences, particularly as they are applied to economics, can provide fascinating insights into how current policy settings drive and deliver particular responses or results".

Both the ATO and NSW Behavioural Insights team are already applying behavioural economics principles to support their initiatives. BETA will take behavioural economics further into the regulatory space at a federal level.

Professor Sunstein's tour of Australia continued with presentations to superannuation industry leaders at the ASFA Inaugural Leadership Symposium and QUT's Business School, with an audience of over 200 people.

Professor Sunstein is the author of many books, including most famously Nudge: Improving Decisions about Health, Wealth and Happiness (with Richard H. Thaler, 2008) and Why Nudge (2014). These books use an analysis of behavioural economics to explore the idea of a 'nudge' - being choice architecture that influences the decisions people make. In Why Nudge, Professor Sunstein goes on to consider when and how a nudge might be used by government to achieve better regulatory outcomes.

Behavioural economics part of regulatory agenda

Behavioural economics and its implications for financial institutions and regulators will be central to the regulatory debate and are now firmly entrenched on the Turnbull Government’s agenda.

The study of behavioural economics can provide valuable insights into the predictable biases and inherent cognitive limitations of how and why customers make financial decisions. With these behavioural insights, institutions can develop strategies, products and information which encourage customers to make better financial decisions, improving the financial outcomes for customers, building greater customer-centricity and ultimately building trust.

The regulatory imperative of putting customers at the heart of business and a comprehensive change in the direction of regulatory pressure has brought behavioural economics to the forefront of the financial services industry.

Principles of behavioural economics are already being used by the FCA in the UK and ASIC in Australia as tools for future investigations and reviews. Consider ASIC's reports in 2015 regarding hybrid securities and interest-only loans. As recently as August 2015, ASIC Chairman, Mr Greg Medcraft delivered a speech entitled 'Trust and confidence, culture and ethics: The right nudge in shaping communities globally and locally.'

An understanding that supports practical integration of behavioural economics into strategic thinking presents a considerable opportunity to forge a productive and effective relationship with regulators.

HDY's Regulatory Risk + Strategy Team look forward to leading the discussion.

Scott Atkins

I'm unapologetically determined and fearless. I pursue excellence. Always.

Scott Atkins Partner

Scott is the Chair of our Board and an internationally renowned insolvency and restructuring lawyer. He is an inaugural Fellow and a member of the Board of INSOL International. Scott is also Vice President of the Australian Restructuring Insolvency and Turnaround Association (ARITA).

Scott is a trusted adviser to Australia's leading banks and insolvency and restructuring practitioners and has acted on some of the industry's most complex and sensitive banking and insolvency advisory and dispute resolution matters.

Prior to joining HDY, Scott practiced for 7 years as in-house counsel with Commonwealth Bank Group. He is now our Client Relationship Partner for the CBA Group. He is also the co-leader of our cross-border insolvency practice and our regulatory enforcement practice. Scott is recognised by his peers for his leading expertise in cross-border insolvency, acting on both inbound engagements in Australia and advising Australian clients on outbound engagements in the USA, UK, Cayman Islands, Hong Kong and The Netherlands, among other jurisdictions.

Scott was the Australian delegate on the Advisory Committee on Comparative Law established by the American Bankruptcy Institute as part of its Commission to Study the Reform of Chapter 11 of the US Bankruptcy Code. This resulted in a landmark report for the reform of Chapter 11.

He is a published author on insolvency and cross-border insolvency. Most recently, Scott was one of the Australian contributors to the 2015 publication 'International Contributions to the reform of Chapter 11 U.S. bankruptcy code' which is volume 2 of the European and International Insolvency Law Studies series. He also authored the Australian chapter of Avoidance of Antecedent Transactions and Cross-Border Insolvency (INSOL International). Among other publications, he is the co-author, together with Professor Rosalind Mason, of the Australian chapter of Look Chan Ho's leading text: Cross-Border Insolvency: Cases and Materials (Kluwer International).

Scott is a visiting lecturer on cross-border insolvency at the University of Sydney in its undergraduate and postgraduate law programs lead by Professor John Stumbles.

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Nikki Bentley

I understand the financial services industry and thrive on helping our clients in this industry succeed.

Nikki Bentley Partner

Nikki is the Group Leader of Henry Davis York's Corporate Group, which includes the legal teams for Corporate / Mergers & Acquisitions; Investments & Financial Services and Tax.

Nikki is a leading investment funds advisor specialising in financial services and corporate law.  She specialises in business establishment and structuring, fund establishment, funds merger and acquisition, product disclosure and distribution. Nikki leads HDY's corporate group which combines expertise from the Financial Services, M&A and Tax areas.

Nikki provides advice to leading Australian and global fund managers on a full range of corporate, commercial and regulatory issues facing their businesses. She has considerable experience in assisting clients with fund establishment (onshore and offshore), disclosure and distribution. Nikki regularly advises clients on establishing, buying, selling and restructuring their businesses. She also regularly assists clients responding to regulatory enquiries and investigations.

With more than 15 years funds management experience in private practice, government and as an in-house lawyer, Nikki's practice spans the range of funds management products, with particular expertise in hedge funds, property funds and equities.

Nikki is regularly involved in industry and government discussions on regulatory reforms impacting the Australian funds management industry. Nikki is a passionate advocate for the development of a new corporate collective investment vehicle because of the opportunities it could provide to grow the funds management industry. She is the Honorary Legal Counsel and Chair of the Regulatory Committee for the Australian branch of the Alternative Investment Management Association (AIMA) and is a regular participant on the Financial Services Council (FSC) working groups.

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John Martin Partner

John is a leading lawyer in both financial sector dispute resolution (complex and regulatory) and corporate insolvency and restructuring, with a particular specialty in cross-border insolvencies. He is recognised by his clients, peers and legal directories as a leader in his field.

Domestically, John advises on large and complex insolvencies and assists in finding solutions for financial institutions with regulatory and other complex issues. His clients include several of Australia's major banks, as well as insolvency practitioners appointed to insolvent entities.

Internationally, John has advised in connection with insolvencies in England, Fiji, Bermuda, Cambodia, Cayman Islands, Brunei, and Norfolk Island. His cross-border experience includes acting for the liquidators of an insolvent bank, and various liquidators of insurance and reinsurance companies.

John is a recognised authority on insolvency issues, with articles published in media outlets such as The Australian Financial Review and the Insolvency Law Journal. He has presented at numerous domestic conferences as well as internationally in the US, England, South Africa, Singapore, Canada, New Zealand, and the Netherlands.

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Claudine Salameh Partner

Claudine has over 15 years' experience dealing with legal issues in the financial services sector.

She is a banking and insolvency litigator and regulatory expert. She acts for the major Australian financial institutions in matters involving customer disputes and litigation, fraud, regulatory and compliance issues, regulatory investigations, inquiries and enforcement matters, security enforcement and insolvency litigation. She also acts for insolvency practitioners in formal receiverships, voluntary administrations and liquidations.

Claudine is well known for her ability to manage risks posed by litigation and regulatory inquiries and investigations. She is particularly attuned to reputational and business risks. She is highly strategic and creative and is recognised by her clients for being able to achieve the perfect balance between legal arguments and commercial and practical outcomes.

Claudine has been instrumental in working with clients to provide insights into the field of behavioural economics, which over the past few years, has been of interest to policy makers and regulators as a tool to engage in 'choice architecture'. On a practical level, Claudine has worked closely with clients to design approaches to customer engagement that make use of behavioural insights.   

Claudine is an expert in the conduct of review and remediation programs and provided assistance to the regulator, by way of submissions and her involvement in an industry working group, on ASIC's regulatory guide on review and remediation programs.

Claudine is very familiar with ASIC's powers to obtain documents and information from financial institutions and is called upon by financial institutions to provide assistance in these matters. She has a style that is conducive to having a fruitful dialogue with both the regulator and the various stakeholders within a financial institution.

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