Commentary: In Response to the Paper by Oran R. Young, How Can International Regimes Solve Environmental Problems? (see pp. 9–29)
The terrain, wonderfully covered by Oran Young, is a dichotomized world consisting of stories wishing to be theories. On the one side we find the economizers – disembedded consequentialists acting according to something called ‘collective action theory.’ On the other side we have the socially embedded citizens of the world intent on practicing what is good (or right). Young helps us to see that both ‘theories’ (and I use that term with great resistance) are ample enough to accommodate almost anything that might appear threatening. We have, in other words, accommodating metaphors whose adherents can pick and choose among confirming signals (assiduously watched for), and can fail to notice disconfirming signals with alacrity. Philosophers would mumble something about verificationist tendencies. As Shackle would put it, ‘what is seen is built upon what is thought (Shackle 1992, p. 66).’ To be fair here, economists have perfected the craft of seeing only what is thought so my comment should not be considered a criticism of political scientists and others who worry about international regimes.
The Philosophical Bases of Institutionalist Economics
The precise nature of the relationship between the disciplines of economics and philosophy has yet to be explicated in detail. Certain family resemblances can be readily verified, and traced to a common lineage. Many of the precursors of Western economic theory, such as John Locke and Adam Smith, were self-identified moral philosophers; many other inhabitants of the pantheon of economic theory, such as Karl Marx and John Maynard Keynes, are recognized as having made substantial contributions to philosophy. Nevertheless, in the modem era, ontogeny does not recapitulate phylogeny; and the average economist in the late twentieth century would deny any necessary or close links between the two fields. In economics, the facade of the repudiation of philosophical preconceptions is propped up by the widespread conviction that modem economics has successfully adopted the character and attributes of a science. This invocation of science is intended to settle all arguments once and for all and to expiate all sins. Of course, this has been a vain hope. Disputes over method, epistemology, and ontology have not been banished because an invocation of science merely impounds controversy under the rubric of "the philosophy of science," without really
Product Literacy and the Economics of Consumer Protection Policy
I suffer from overoptimism bias. I know this, yet I accepted the invitation to write a commentary on product literacy and consumer protection for this special issue. After devoting over twenty-five years to consumer protection research and law enforcement at the Federal Trade Commission (FTC), the topic was in my wheelhouse. Surely, I could meet a deadline that seemed reasonably far away. But I also suffer from hyperbolic discounting, so I procrastinated. When I finally sat down in earnest to write this essay, panic set in, because I realized that the concept of product literacy is not well defined. Now what? Relying on my overoptimism, I decided to create my own definition. This exercise forced me to confront vexing questions about competing theories of consumer behavior and their implications for consumer policy. Consumer policy development depends fundamentally on the policy maker's view of consumer behavior. Policies will differ depending upon whether consumer decisions are viewed as rational, irrational, or somewhere in between. Yet, theories regarding rational consumer choice are in a state of flux, largely due to the growth and popularization of behavioral economics. Popular books such as Nudge have placed behavioral economics front and center in consumer policy circles (Thaler and Sunstein 2008). It is now fashionable inside the Washington DC Beltway to point to behavioral research suggesting that consumers do not maximize wealth, are overly optimistic, or procrastinate due to hyperbolic discounting, as proof that policies based on rational consumer models are insufficient to protect consumers (Kobayashi et al. 2012). This conclusion is then frequently used to argue that new policies should be implemented to protect people from their irrational selves. For example, some argue that mandating information disclosures from sellers is not enough--because consumers do not pay enough attention to them--and that disclosure regimes should be supplemented with or replaced by more prescriptive remedies, such as product bans or product preapproval mechanisms (Ben-Shahar and Schneider 2011; Posner and Weyl 2012). Although the future of consumer policy will be shaped by prevailing views of consumer rationality, there is surprisingly little serious debate among scholars from different disciplines or subdisciplines about the evidence for and against different models of consumer decision making. There are notable exceptions, but even when meaningful debate occurs it is often clouded by confusion over the precise meaning of key terms. What does it really mean for a consumer to be rational, or irrational, or reasonable? Discussion in behavioral circles tends to focus on whether people behave rationally, in the sense that people maximize an unconstrained or partially constrained utility problem. Evidence that people do not behave according to simple utility maximization models is often seen as evidence that people are not rational. What I find perplexing is why the standard for rationality in behavioral discussions tends to be based on utility maximization or wealth maximization constrained only by limited financial resources. I find this perplexing because the economics of consumer behavior, as taught in graduate school over thirty years ago, was based on a much more realistic model of consumer choice. When I explain this at conferences I encounter surprise by practitioners and scholars who are fluent in behavioral economics. Consumer economists have long understood that consumers face real time constraints, wealth constraints, and household production constraints, including decision-making and information-processing constraints. In this essay, I define product literacy and discuss where the concept fits within the law and economics of consumer protection. In so doing, I attempt to clarify what it means to be a rational consumer vs. a reasonable consumer vs. an irrational consumer. These different views of consumer behavior matter, because they can lead to different policies with different implications for consumer choice and consumer welfare. …