Behaviour and Compliance in Organisations

Abstract

To be effective, regulators need to ensure that firms comply with the rules they set. Compliance in practice depends on a range of factors, including incentives, governance, controls, culture and behavioural issues. This paper considers how regulators can complement an incentive-based ‘credible deterrence’ approach with an approach that uses insights from psychology to change the way that firms make compliance decisions. This involves analysis of behavioural biases, morality, culture and social norms, which have tended to be studied in the context of consumer decision making. Their implications for compliance are less well understood. Developing our understanding of these implications is a key motivation for this paper.