Richard Thaler on the value of disclosure in financial regulation

In financial markets, where evidence of irrationality has been abundant lately, (Thaler) says he would increase regulations, but very carefully. There’s no evidence, (Thaler) said, that regulators could actually determine appropriate leverage for specific investments, for example, and “heavy-handed regulation” could shut down financial markets and weaken the economy further.

“The trick is to try and figure out a way of forcing these firms to disclose more of what they’re doing without giving away so much that they can no longer make a living,” he said. Such information would help individuals decide whether to invest in the funds, and would help regulators assess overall risk imposed on the financial system and the economy. In addition, he said, disclosure itself often has a salutary effect on behavior because people tend to be mindful of the opinions of others.

Thaler calls Sunstein the “Nudger in Chief.” Read the full piece in the New York Times.

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  • Steven Adler

    The IBM Data Governance Council has announced an initiative to develop a loss reporting standard that will require firms to report past losses to a common federal loss repository. The loss repository will enable greater macro-economic loss trending and risk forecasting. This will enable greater regulatory oversight, market transparency and may change human behavior by making past losses more visible at the time of decision-making.

    We welcome all interested parties to contact IBM for additional information on this standards initiative and opportunities to get involved.