Transparency is an important input into the stability of a financial system, and the lack of transparency constitutes a dangerous trigger for crisis. Lacking transparency over the value of assets could indeed have contributed strongly to the great crisis the world economy has been suffering from over the last few years. This applies to sub prime real estate and government bonds alike. When investors and consumers are lacking information about relevant parameters, such as the profitability or risk exposure of assets or the behavior of the people managing them, a financial system will ultimately be destabilized.
A recent workshop co-organized by SAFE’s Transparency Lab brought together views on some of the behavioral foundations for transparency. 44 experimental economists (including 19 PhD candidates) from nine countries presented and discussed their related work. The lessons implied by the presentations related to the question of how investors make financial decisions, the costs and benefits of delegated regulation, and the emergence and implications of money illusion.