A report from the Economic and Social Research Institute has called for tougher regulations to protect consumers when they deal with banks and other financial companies.
Its author Dr Pete Lunn reviewed more than 80 studies of how people make financial decisions.
At a paper being presented at an ESRI conference in Dublin today, he says the research reveals "systematic biases in financial reasoning" that can result in consumers paying too much for financial products and taking on too much risk.
The report says most consumers lack the knowledge needed to choose the better deals from the many products on offer. Dr Lunn says international research shows that even those consumers with better financial understanding are prone to reasoning that can lead them to take on too much debt or to pay too much in fees to financial firms.
He says education, information campaigns and efforts to simplify descriptions of products make "at best, only modest" improvements to consumers' decision-making.
The report concludes that stronger enforcement of consumer protection rules is needed to make companies act in consumers' interests. It says this could include tougher inspection, bigger punishments and the publicising of violations. But the report adds that, if these measures fail to work, financial products could be made subject to licence.
Separate research by the ESRI's Dr David Duffy finds that bringing in loan-to-value (LTV) limits on mortgages could help to prevent a repeat of Ireland's housing bubble.
He says international evidence suggests that forcing home buyers to put down higher deposits dampens house price growth and also protects the financial system from sharp declines in house prices.
"The evidence suggests that countries with higher LTV ratios have experienced higher house prices and higher house price volatility," Dr Duffy says.
He says that, although LTV ratios in Ireland have fallen in recent years, this is a market response to the economic crisis. Dr Duffy says the introduction of LTV limits by regulators now would not affect the weak housing market now, but would prevent the re-introduction of 100% mortgages when the market picks up.
