Wednesday, 17 October 2012

Seduction by Contract

NYU Professor Oren Bar-Gill just published a book on the legal, economic and psychological aspects of consumer contracts. The introduction to the book, entitled 'Seduction by Contract', is available on SSRN and may be summarised as follows:

'Consumers routinely enter into contracts with providers of goods and services. These contracts are designed by sophisticated sellers to exploit the psychological biases of consumers. They provide short-term benefits, while imposing long-term costs – because consumers are myopic and optimistic. They are excessively complex – because complexity allows sellers to hide the true cost of the product or service from the imperfectly rational consumer. Using both general theory and detailed case studies, this book explains the costs – to consumers and society at large – imposed by seductive contracts, and outlines a promising legal policy solution: Disclosure mandates. Simple, aggregate disclosures can help consumers make better choice. Comprehensive disclosures can facilitate the work of intermediaries, enabling them to better advise consumers. Effective disclosure would expose the seductive nature of consumer contracts and, as a result, reduce sellers’ incentives to write inefficient contracts.'

The transcript of a recent interview with Professor Bar-Gill on the subject matter of this book can be found here.

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