Wertenbroch, K.Consumer (mis)behavior and public policy intervention

Recommended reading

Klaus Wertenbroch

Release date:
February 2017

INSEAD Working Paper No. 2017/14/MKT

Consumers often "misbehave" (Thaler 2015). They save and exercise too little; they spend, eat, and drink too much and take on too much debt; they work too hard (or too little); they smoke, take drugs (but not their prescription medicine), have unprotected sex, and carelessly expose their private lives on social media. These misbehaviors may entail large costs not only to society but also to the individuals concerned. Hence, policy makers feel compelled to regulate these behaviors along with the extent, to which companies are allowed to cater to, or take advantage of, consumer preferences to engage in these behaviors. Yet, such policy interventions are often not based on the revealed preferences of those consumers who are mostly directly concerned by these interventions. Instead, they often follow expert assessments of consumer welfare or the objective to minimize negative externalities. In this paper, the author proposes an alternative approach, building on Wertenbroch (1998), for how the theory-guided use of experimental methods, complemented by field data, to detect instances of consumer precommitment in the marketpace can provide both a criterion for evaluating the need for policy intervention – based on consumers' own revealed preferences – and a tool for allowing consumers to avoid or limit their own misbehaviors without imposing heavy-handed, intrusive constraints on market participants' freedom of choice (Thaler and Sunstein 2003).

Link to publication