glenn stevens : innovation, stability and the role of the payments system board address by mr glenn stevens, governor of the reserve bank of australia, to the australian payments clearing association ( apca ) 20th anniversary symposium, sydney, 28 may 2012. * * * i have not spoken publicly on payments system matters for some time, but it would be hard to find a better moment and a more appropriate event to take up the issue once more. this symposium of course marks 20 years of the australian payments clearing association, which was set up as a vehicle to coordinate decision - making in relation to clearing and settlement following the recommendations of the brady and martin reports in the years prior. it effectively replaced the australian clearing house association, which was largely focused on cheques – the dominant payment system of the time. sharing the stage with apca in the early days was the australian payments system council, which had been established in the 1980s as an advisory body to the government aimed at promoting and influencing the development of payment systems. the council was wound up when the payments system board was established in 1998, following the recommendations of the wallis inquiry. apca itself has evolved over the years. new clearing streams have been added and it has moved more into an industry representation role. its make - up has also evolved ; for instance i note that it was originally chaired by a representative of the reserve bank, an arrangement that ended in 1998. all this change over an extended period is a sure sign that there has long been recognition of how critical governance arrangements are to payments systems. the same debates that have occurred in australia on these issues are repeated around the world. in fact, while the institutional arrangements for payments vary enormously from one country to another, it is remarkable how similar the debates are in each of those countries. i will be dealing with some of those issues today. the other reason that it is a good time to be speaking about payments is that, as i am sure many of you are aware, the conclusions of the reserve bank ’ s strategic review of innovation are due to be released very soon. in fact they will be out within the next couple of weeks. i cannot pre - empt the detailed findings, but i will share with you some of the major themes. naturally, most people will focus on the implications for the payments industry. but the conclusions will also have implications for the way that the payments system board goes about its business in relation to retail payments issues. that is as it should be. the board is

real - world examples, before turning to ways in which central banks can avoid falling prey to it in our own deliberations. by forming contingent hypotheses about the future – rather than overly precise point forecasts. by learning continuously – from our own forecast errors, from diverse quantitative models, from corporate liaison and other qualitative intelligence - gathering, from experience in other countries, and from internal and external challenge, including scenarios and ‘ what - ifs ’. by communicating clearly and openly about what we don ’ t know, as well as what we do. and by adopting policy strategies that reflect risks to the outlook, as well as the central case. i will describe how some of these tools were applied in our most recent monetary policy round, and how we hope to develop them further. overconfidence in everyday life to illustrate how commonly overconfidence arises in everyday life, let me pose four questions, most with a queensland flavour. i ’ m keen to know both your answers, and also your confidence in those answers : 1. how many paving stones cover qut ’ s gardens point campus? 2. will it rain in brisbane tomorrow? 3. who will win the 2025 state of origin rugby league series? 4. what will elon musk do next? question 1 provides scope for the greatest certainty, because there is a precise, knowable answer. at the same time, it ’ s not an easy question – few of us have intimate knowledge of the campus ; fewer still are quantity surveyors or have the time to go and count them! so while we can make more or less informed guesses, we are likely to cite wide ranges of uncertainty around those guesses. what ’ s striking, however, is that, while we may think the ranges we give are wide, they are actually almost always too narrow. table 1 reports the results of an exercise in which professionals across a range of industries were asked a set of hard but factual questions like the one i ’ ve just posed. the column on the right shows how often people ’ s ranges of uncertainty are too narrow to include the true answer. so, for example, only 10 per cent of those asked to give 90 per cent confidence intervals should miss the true answer. in fact, miss rates lie between 42 and 64 per cent. people are vastly too confident about what they truly know. r e s e r v e b a n k o f au s t r a l i