Advanced Search
MyIDEAS: Login

Are Consumer Decision-Making Phenomena a Fourth Market Failure?

Contents:

Author Info

  • Lunn, Pete

Abstract

This paper challenges the increasingly common view that the findings of behavioural economics constitute a fourth type of market failure. The market failure framework elevates the standard competitive market model to the status of an ideal. It provides us with tools to identify departures from the ideal model and to deduce a direction policy might take to restore it. Many behavioural phenomena also imply departures from the ideal model. Yet rather than allowing us to deduce a good direction for policy, the findings question the legitimacy and usefulness of this deductive theoretical framework for policy analysis. Two policy problems are highlighted here: the validity of inferring that consumers' choices after an intervention improve outcomes relative to their previous choices, and the potential for distributional consequences when policy alters consumers' choices. The paper concludes that, given these problems, conceiving of the relevant behavioural phenomena as an additional form of market failure is potentially to misunderstand their implications for consumer and competition policy.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.esri.ie/pubs/WP455.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Economic and Social Research Institute (ESRI) in its series Papers with number WP455.

as in new window
Length:
Date of creation: Apr 2013
Date of revision:
Handle: RePEc:esr:wpaper:wp455

Contact details of provider:
Postal: Whitaker Square, Sir John Rogerson's Quay, Dublin 2
Phone: (353-1) 863 2000
Fax: (353-1) 863 2100
Email:
Web page: http://www.esri.ie
More information through EDIRC

Related research

Keywords: Market Failure/Decision-making biases/Behavioural economics/Regulation;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Brigitte C. Madrian & Dennis F. Shea, 2001. "THE POWER OF SUGGESTION: INERTIA IN 401(k) PARTICIPATION AND SAVINGS BEHAVIOR," The Quarterly Journal of Economics, MIT Press, vol. 116(4), pages 1149-1187, November.
  2. Stefano DellaVigna, 2007. "Psychology and Economics: Evidence from the Field," NBER Working Papers 13420, National Bureau of Economic Research, Inc.
  3. Jason F. Shogren & Laura O. Taylor, 2008. "On Behavioral-Environmental Economics," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 2(1), pages 26-44, Winter.
  4. Lunn, Pete, 2013. "Telecommunications Consumers: A Behavioural Economic Analysis," Papers RB2012/4/3, Economic and Social Research Institute (ESRI).
  5. Beshears, John & Choi, James J. & Laibson, David & Madrian, Brigitte C., 2008. "How are preferences revealed?," Journal of Public Economics, Elsevier, vol. 92(8-9), pages 1787-1794, August.
  6. Drazen Prelec & George Loewenstein, 1998. "The Red and the Black: Mental Accounting of Savings and Debt," Marketing Science, INFORMS, vol. 17(1), pages 4-28.
  7. Lunn, Pete, 2012. "Behavioural Economics and Policymaking: Learning from the Early Adopters," Papers WP425, Economic and Social Research Institute (ESRI).
  8. Shane Frederick, 2005. "Cognitive Reflection and Decision Making," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 25-42, Fall.
  9. Beshears, John Leonard & Choi, James J. & Laibson, David I. & Madrian, Brigitte, 2008. "How Are Preferences Revealed?," Scholarly Articles 11130523, Harvard University Department of Economics.
  10. Michael D. Grubb, 2006. "Selling to Overconfident Consumers," Discussion Papers 06-018, Stanford Institute for Economic Policy Research.
  11. Margaret G. O'Donnell, 1979. "Pigou: an extension of Sidgwickian thought," History of Political Economy, Duke University Press, vol. 11(4), pages 588-605, Winter.
  12. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
  13. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
  14. Brad M. Barber & Terrance Odean & Lu Zheng, 2005. "Out of Sight, Out of Mind: The Effects of Expenses on Mutual Fund Flows," The Journal of Business, University of Chicago Press, vol. 78(6), pages 2095-2120, November.
  15. Matthew Bennett & John Fingleton & Amelia Fletcher & Liz Hurley & David Ruck, 2010. "What Does Behavioral Economics Mean for Competition Policy?," CPI Journal, Competition Policy International, vol. 6.
  16. Hans-W. Micklitz & Lucia Reisch & Kornelia Hagen, 2011. "An Introduction to the Special Issue on “Behavioural Economics, Consumer Policy, and Consumer Law”," Journal of Consumer Policy, Springer, vol. 34(3), pages 271-276, September.
  17. Joseph E. Stiglitz, 2000. "The Contributions Of The Economics Of Information To Twentieth Century Economics," The Quarterly Journal of Economics, MIT Press, vol. 115(4), pages 1441-1478, November.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:esr:wpaper:wp455. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sarah Burns).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.