Protecting consumers from themselves (and each other)

Published in Insights, The New Zealand Initiative’s newsletter, 18 November 2016

Once upon a time, in a previous life it now seems, I wrote a doctoral thesis on the law and economics of advertising regulation. One of the fun facts I still remember is a paradox in people’s attitudes towards advertising.

If you ask them if advertising frequently misleads other people, a large majority will typically agree. However, if you ask the same people if they themselves are frequently misled by advertising, an equally large majority will reject this proposition.

There is no logical way of getting these two positions together. Either people overestimate their own rationality or they underestimate the capabilities of their fellow citizens.

To put it more bluntly, people might be dumber than they think or at least not that much more intelligent than everybody else.

In any case, because most people believe that most other people are dumb, they are quick to demand all sorts of regulations. Not to protect themselves, but to save their allegedly foolish neighbours from themselves.

We are seeing such calls for government intervention all the time. In its most subtle form, it is about ‘nudging’ people towards making ‘better’ choices. In its not so subtle variety, government is asked to ban, tax or heavily restrict things.

But what if people are better able to figure out for themselves what is good for them and what is not? Especially in an age defined by social media and the ubiquity of information, aren’t there better ways for consumers to make informed choices?

An old marketing wisdom is “Nothing kills a bad product quicker than good advertising”.

And indeed, try selling cheap and nasty plonk as premium wine with a glamorous campaign and you will not only burn your marketing budget but also wreck your reputation in the process.

Now imagine what modern information sharing can do to eliminate bad products and services. Think of Uber which allows users to rate their drivers. It does not even take a big budget to quickly identify problems with individual drivers – and it does not need a regulator to do it.

Such new tools could also help assure people that their fellow citizens can be safely left to themselves when it comes to consumer choices.

Professor Julian Morris, Vice President of the US think tank The Reason Foundation, has been researching these issues for many years. We look forward to hosting a lunchtime talk with him in Wellington on 28 November at which he will explore such new options for truly smart regulation.

Please join us if you want to find out more on how consumers can be protected – from calls for more regulation.