BE, Nudge & Richard Thaler’s cognitive bias theory: Unraveling Consumer Inattention in the Digital Age

Dear Readers,?

In this TB Quest, we share our preoccupation with consumer inattention through the lens of behavioral economics in the digital age. With information overload becoming the norm, people often miss or overlook crucial details about products, services, and contracts.?

Can behavioral economics help policymaking to overcome market failures?

In June, our Scribers discussed the impact of behavioral economics on consumer choices.?

It has been noted that policymakers, lawmakers and even businesses are using cognitive behavioral solutions for “nudges” to influence end users to make a conscious choice or “sludges” to exploit them -?

Whether digital choice architecture increases or decreases social welfare?

Depends on the way the choice architecture is designed to facilitate decision making.?

TB Scriberes (Bhavna Bokolia and Aastha Jain) examined the fascinating ways in which cognitive biases shape our lives.?

There are various examples of “nudges” and “sludges” that affect consumer behaviour. Nudges are influences to help end users to make a conscious choice, Sludges exploit them.? In this article titled ‘Between nudge and sludge are lessons for India’, the author explains both concepts.?

Both private companies and government uses a mix of Nudge and shove policies to influence consumer behaviour to achieve their policy goals.

TB Quest is : Why use Nudges and When to use shove policies which are more severe regulations and mandates.?

Nudges simply act as guidance without restricting user behaviour, for instance -?

• Cooling off periods to prompt conscious choices making subscriptions easy to cancel;?
• Choices with Parental controls in online gaming options and OTT platforms
• Instagram alerts to limit the time one spends on the app.

Sludges, also known as dark patterns, are tactics that exploit consumer biases, tricking them into regrettable decisions, like -?

• Mandatory default options
• Carts to “Re-order” from past purchases
• Subscription traps

Platforms frequently manipulate consumer attention using various techniques, such as arranging search results in a specific order and prioritising paid content over organic content. Sludges work short-term. For lasting success, platforms & organisations alike, need to build trust by offering ethical choices. Managers could take the lead in crafting technology that truly benefits customers.

Companies face a critical ethical and strategic decision:?

TB Quest is -?

• Whether to exploit behavioural biases or help debias their customers?
• Whether to nurture long-term customer relationships by acting in their best interests or exploiting these biases for short-term profit??

An obvious ethical choice is not to exploit customers' biases. However, this approach isn't a quick or cheap solution; it involves creating a choice architecture that addresses various common online biases.

We're often drawn to solutions that seem tangible, like engineering fixes, technological gadgets, or legislation that prescribes specific behaviours. Behavioural and psychological solutions tend to be our last resort. According to behavioural scientists, while it's great to find rational solutions for engines and motors, it can often be pointless when dealing with people. For instance, government legislation often represents 'compulsory solutions' to regulate sectors—using coercion before trying persuasion to justify their stance 'rationally' rather than 'emotionally.' TB’s Quest into The Choice Architecture? - pro or anti-consumer practices?

It is fascinating? how “cognitive biases” plays a role in our lives. In a panel discussion at Law Asia Conference TB Thoughtleader Anupam Sanghi shared three takeaways:

• Consumers are biassed towards certain solutions they ‘see’ have tangible solutions, with engineering, technological gadgets or? legislation coded conduct, the last resort would be actually behavioral / psychological solutions.?
• Behavioural scientists say its good to find rational solutions for engines and motors but may be often pointless in dealing with people.?
• What the government does by way of legislation is ‘compulsory solutions’, to regulate any sector - coercion before they try persuasion justifying their stance ‘rationally’ rather than ‘emotionally’.

The regulatory conundrum against Big Tech cases in India, prompted the Parliamentary Standing Committee on Finance (PSC) to come up with a report (Dec, 2022), identifying ten Anti-Competitive Practices (ACPs) by Systemically Important Digital Intermediaries (SIDIs)? that need to be tackled through Ex-Ante Rules by framing a ‘Digital Competition Act’? (DCA) - A primer to the Digital Competition Bill.

As we approach a significant expansion in antitrust regulation, it's crucial to adapt existing doctrines to the evolving landscape and emerging business models. Anupam Sanghi suggests a Techno-legal approach, in this article published in Competition Policy International - The need is to understand whether a fresh perspective can help bridge the gap between technology and regulatory mindsets while addressing the related risks. The Key Takeaways are :?

• How we can shape sustainable regulations and policies in Big Tech.
• On balancing innovation with fair competition .?
• Additionally, it offers a thorough analysis of the Tech-Reg gap.?

TB implores you to think about - How do you think cognitive biases influence your daily decisions, especially in the context of digital platforms? Have you ever noticed any "nudges" or "sludges" in the services you use?

Some more questions to think about?:

• With the increasing influence of digital choice architecture, how do you think policymakers should regulate "sludges" to protect consumers??
• What measures can be put in place to protect consumers from the negative impacts of sludge policies?