Whether Consumer Regulation Should Use Findings of Behavioural Economics to Ensure Protection - Essay Example

The empowered consumer is a myth. Consumer protection regulation should use findings of behavioural economics to ensure a high level of protection. Discuss Introduction As a neutral third party agent of business, the interest and protection of the consumer has been taken over by various statutes and regulations. The reason for this is that the consumer is yet to attain an improved decision making status that gives him the independent locus to command such interest and protection1. For most of these regulators, such as the European Union (EU) that uses various consumer protection legislations to protect the consumer, their emphasis has been to achieve a state of empowered consumer2. Such an empowered consumer is expected to be the one who feels safe enough “to put into effect their own choices through demonstrating their needs, wants and demands in their decision-making with others in the marketplace”3. By feeling safe, the consumer assumes that the source of the product or service being paid for has engaged in all necessary jurisdictional processes that ensure that there is maximum protection for the consumer. Currently, the general assertion is that through the use of the present form of EU consumer protection legislation, this state of empowered consumer has been attained. The essay argues however that there remains a lot to do, especially through the use of outcomes of behavioural economics to achieve such heights of protection that can guarantee the empowered consumer status. Who is a consumer? There have been different domains that have attempted to define who a consumer is. For example, out of the criminal proceedings against Patrice de Pinto, the definition of a consumer as a natural person who is acting outside his or her trade or profession was determined. 4 By implication, the consumer is seen as an innocent party in a transaction who cannot have the professional knowhow to guarantee his protection or safety based on common procedural outcomes. 5 It is for this reason that the EU recognises a consumer to be a natural person who is acting for purposes which are outside his trade, business or profession6. From the definition of a consumer, we see the need for the consumer to be protected, as the consumer is perceived to be an unprofessional. Consumer Protection Regulation CPR has been identified to be a whole institution of its own involving laws and organisations7. Whereas the laws are in place to spell out things that should not be done by businesses to take undue advantage over consumers, the organisations are in place to ensure the enforcement of the laws. The case of Koln v Darbo is typical example where charges for prohibition of labelling liable to mislead purchasers were ruled8. The laws under consumer protection have also been identified to be necessary in ensuring that the rights of consumers are adequately protected in the marketplace9. To the consumer therefore, consumer protection is a receptive right that is accorded to him as part of his contribution on the marketplace. It would be noted that consumer protection has two major focuses, which are to protect the right of consumers and to ensure fair trade. The focus of this essay looks at the former, where the protection of the rights of the consumer is emphasised. To do this, the organisations involved in consumer protection have used various interventions including the disclosure of all information necessary for consumers to make well informed choices. Current state of the empowered consumer Some scholars have posited that there is a direct relationship between consumer protection and empowered consumers. Such scholars believe that “consumer protection legislation is currently based on the assumption of the autonomous consumer”10. Consumer protection is thus seen as the right of the autonomous consumer, where autonomous consumer may be defined as the freedom to opt out of any trade agreement at any point in time, as was ruled in Koln v Mars GmbH11. As explained earlier, the empowered consumer is one who feels safe enough to engage in trade transactions. There is a triangular interflow of interest, where the autonomous consumer is thought of to deserve consumer protection so as to make the consumer empowered. The state of empowered consumer is expected to be the principal stage of consumer engagement where the consumer should feel a legislated part of the business environment. There continues to be criticisms however of how underpowered the consumer currently is12. Because consumer protection is to lead to empowerment, much of the blame of how defeated the notion of empowered consumer is has been put on the present approach to consumer protection. Weakness of the current approach to EU consumer protection legislation Most current works of research continue to emphasise that indeed the modern day consumer has little empowerment.13 Laying the blame at the doorstep of the current approach to EU consumer protection, the approach has been described as the information approach, where the achievement of empowered consumer is defined by the extent to which the consumer has information. According to The European consumer law, which posits that “the provision of information to consumers will create the informed consumer, who will then be able to make informed choices in a free market”.14 This perspective and approach to consumer protection has however been described to be very weak, looking at the fact that it has several gaps that it refuses to address. For example, the issue of how much information is needed to protect or empower the consumer is not answered in most statute books of member countries. The unfair contracts law for example fails to give a clear scale that can be used for measuring the state of fairness and unfairness, which a major issue of lack of sufficient information for the consumer. 15 There is also a blatant disregard for how much of information is going to consumers and whether consumers are able to make adequate use of such information to secure the level of protection they desire16. Based on these identified weaknesses, the need for a more pragmatic approach that makes use of information from consumers rather than one that gives information to consumers is required. Overview of Behavioural Economics In the later part of the previous section, it was mentioned that basing the consumer protection and as such empowered consumer on the amount of information that goes to the consumer is not adequate. For this reason, there is the need for a more consumer based approached that looks at information from consumers in making regulations and laws to protect the consumer. With this said one approach that readily shows up in literature is the behavioural economics. Behavioural economics has been explained to be the study of the outcome of social, emotional and cognitive factors on economic decisions made by consumers17. Even though the emphasis of the essay is on consumer purchases, behavioural economics can actually affect several economic variables including market prices, returns and resource allocation18. Once used, behavioural economics requires detailed research that makes it possible to use the outcome of research to shape the information going to consumers to ensure that consumers make right decisions. With this said behaviour economics can be said to promote information balance, where information taken from consumer is refined into decision-making information for the consumer. Using Findings from Behavioural Economics to achieve the Empowered Consumer To use findings from behavioural economics to achieve the empowered consumer, there are two major areas that may be looked at; these are widespread business decisions and in legislation. EU legislation frowns on the act of taking undue advantage of competitors19 but no laws frown on the act of gaining competitive advantage. To this end, findings from behavioural economics have been identified to be important tools that can be used by businesses to gain competitive advantage. This is achieved by gaining knowledge on the consumer decision making trend20. Once the knowledge of how consumers make decision is known, businesses then have the advantage of influencing consumers by producing and serving to meet the decision based expectations of the consumers. The reason this can bring about empowered consumer is that in the long run, it is the consumer’s interest that is served as opposed to the business. This way, toll of power becomes shifted to the benefit of the consumer. There is also empowerment because the use of information does not become unbalanced to the favour or the businesses where there may be information flaws such as deception, poor quality of information, misinterpretation by consumers and substantiations21. On the other side of the argument, findings from behavioural economics can be used in legislation to achieve or bring about the state of empowered consumer. In the first place, because findings from behavioural economics are primary data rather than secondary data, it can be trusted that they will offer protection in reality when rules are made based on them22. This is because such findings embody the very scope of information needed by the consumer to feel protected. Findings from behavioural economics can therefore be used in knowing what is right for the consumer. To use findings from behavioural economics to make legislative rules for consumer protection is however not a conclusive process in itself. What this means is that findings can also help in outlining where consumer may be misinformed or may be having inappropriate need for information23. Once such types of information are known, there can be provisions made to protect the consumer against such information. An example is a behavioural economics finding that reveals that some dosage of narcotics is good for a group of consumers to function optimally. Once such information is known to be wrong, there can be narcotics protection legislations to protect such consumers against what they know. Merits of using findings of behavioural economics for Consumer Protection The first merit that has been associated with the use of behavioural economics for consumer protection is that it takes into consideration the core needs of vulnerable consumers. Until now, all that the information approach used by the EU does is to generalise consumers and require that they each be given some level of information24. Through the findings of behavioural economics, there is a clear distinction between consumers and consumer needs. When consumer protection decisions are made from such findings, they can become regulations that cut across the divide of consumer differences, most importantly vulnerable consumers. This way, consumer protection laws can be said to be useful and well approached towards those who need their existence most. Secondly, using findings from behavioural economics for consumer protection makes it possible to differentiate between more information and better information. Until now, producers and service providers who are able to provide some depth and quantum of information are thought of to be those that protect consumers most. However, more information has been criticised as not being equal to better information and thus the need to ensure that there is the offering of better information. Better information has also been explained to be one that addresses specific needs of consumers25. For now, the information approach to consumer protection only tells the consumer what is good for him without giving the consumer room to decide what he wants. The information that the consumer takes therefore comes to the consumer as a bulky set of information, which is difficult to use. Lastly, the impact of poor consumer protection has also been outlined and noted to be well catered for under the use of findings of behavioural economics. As part of the impact of poor consumer protection, the state is identified to be a loser when it comes to issues such as retirement savings and insurance that goes to consumers that are ill-protected. But should an era that base consumer protection legislation on what the consumer requires come, then it can be said that the consumer will not have much legal course to debate the state over non-protection cost. Instead of non-protection cost, the only cost that may possibly exist will be non-compliance cost that may rather go to the consumer for refusing to comply with consumer protection provisions after all the efforts had been made to offer tailored and customer oriented consumer protection. Weaknesses with using findings of behavioural economics As there are many consumers who can be represented by the total population of the country, using findings from behavioural economics may imply having as many distinct consumer contract laws as possible26. Meanwhile, such state of influx of laws has been noted to present challenges for the enforcement and regulation of the law27. Where there so many distinct consumer contract laws also, there may be the temptation that interpretation of the laws by the courts may be very difficult, causing undue delays in the legal process. There are also those who believe that using finding of behavioural economics to be the basis consumer protection would mean that businesses, especially small and medium scale enterprises (SMEs) will be highly suppressed, less protected and greatly intimidated28. This is because the search for such a near perfect protection for the consumer may mean no room at all for mistakes by producers and service providers, whether deliberate or accidental. Finally, there have been recent calls about how other stakeholders in decision making will be cut out if findings of behavioural economics are emphasised. In effect, using findings of behavioural economics may be impartial against other stakeholders like suppliers. As supply chain management is a chain involving several stakeholders, it will be important the interests of all of these stakeholders are adequately protected. Conclusion The discussions above have been very useful in establishing the current place of the information approach to consumer protection that is currently used by the EU. As it currently is, there is so much emphasis on the need for producers and service providers to give consumers information that will help consumers to make well informed decisions. From the perspective of the EU, this approach is useful in bringing about the empowered consumer. This approach has however failed in its bid to achieve empowered consumer and only presents the case of the empowered consumer as a myth. This is because the information approach fails to recognise issues of potential flaws in information and the degree of responsibility put on the consumer in trying to seek information. The use of findings from behavioural economics is therefore identified as the ideal approach to ensure high level of consumer protection and for that matter empowered consumer. This is because findings from behavioural findings put the consumer at the centre of information process, where businesses can use such findings to know what to provide to consumers, and legislators can also use such findings to know which types of information to enforce. 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