The Australian Securities and Investments Commission (ASIC) is increasing its use of behavioural economics, to see how psychology affects consumer and market actions.

Chairman Greg Medcraft says evidence-based studies of how people think and behave will be increasingly important to smarter regulation.

It may help ASIC present information in a way people can more easily process.

“As ASIC continues to develop insight into how and why people behave the way they do, we will be in a better position to develop responses that are potentially less interventionist, while having greater impact,” he said last week while releasing two studies conducted for the regulator.

The UK’s Financial Conduct Authority has used behavioural economics to identify why consumers make bad financial choices. It has found people often misjudge probabilities and make poor insurance or investment decisions.

Decisions can be emotional rather than based on costs and benefits, the authority says. The complexity of products may lead consumers to simplify matters in ways that lead to bad choices, such as focusing only on headline rates.