Alan Greenspan, the former Governor of the Federal Reserve, remarked in the context of the financial crisis that ‘even sophisticated investors got things badly wrong’. This comment throws a spotlight on quite how out of step and unrealistic general assumptions can be as regards markets and market regulation. From a consumer perspective, we may wonder what chance the average consumer has of getting things right, if sophisticated investors can get things so badly wrong?

Much of the legislation governing financial products and financial services is based on the classical view that economic agents, including consumers, are essentially selfish by nature, seeking to maximise their personal financial benefit, by acting in a rational manner and through making independent choices.

Of course, nobody pretends that this view is an accurate reflection of the economy, and even less so an accurate portrayal of human beings. Yet this forms the standard profile for modelling and thus the basis for assumptions which underpin much of the regulation governing the economy.