Behavioural Public Policy Seminar 7 by Bob Sugden

There is growing public concern about the multiplication of allegedly unfair trading practices (e.g. 'bill shock', 'loyalty penalties', obstacles to the cancellation of contracts). Many of these practices are ineffective against savvy (neoclassically rational) consumers and, in competitive markets, benefit savvies at the expense of naive consumers. How should regulators respond to these practices? Bruce Lyons and I argue that there is a mismatch between (i) the moral perspective in which trading practices are viewed as unfair and (ii) the normative principles on which both neoclassical and behavioural welfare analyses are based. This mismatch is an obstacle to the design of coherent regulatory responses.

Our paper proposes a criterion of transactional fairness that is compatible with the politically neutral objectives of regulatory agencies and doesn't require regulators to make judgements about consumers' 'true' preferences. But the object of the seminar is not to dissect this specific proposal; it is to discuss the general problem of specifying principles for the regulation of unfair trading practices.

View the seminar recording on YouTube