Enste, D. et al.Consumer protection and behavioral economics: The psychology of trust and control

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Dominik Enste, Mara Ewers, Christina Heldman & Regina Schneider

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Institute of the German Economy Cologne, IW-reports 106

With consumers being confronted to make increasingly complex decisions, the need for an efficient and effective consumer policy is more urgent than ever. Yet how can consumers' choices be made easier without imposing excessive restrictions on suppliers and the variety of goods and services available? No convincing answer to this question can be provided on the basis of homo economicus, the model of man adopted by neo-classical economic theory, since many aspects of consumer behavior are not consistent with this concept. The present IW analysis is therefore devoted to alternative strategies for developing an evidence-based consumer policy drawing on behavioral economics. The results of psychological research help us to paint a more realistic picture of the consumer and to develop solutions for better-targeted consumer protection. Our focus is also on companies, which can use confidence-building measures to improve relations with the demand side and thus pre-empt regulatory intervention. Stricter laws stipulating ever more detailed consumer information are often of little use to either companies or their customers.

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