The first fundamental step to optimally design consumer policies and study their effectiveness is a solid understanding of consumer behavior. This is not only affected by consumers’ preferences and biases but it also depends on the information available in the market, producers’ incentives to exploit consumers’ biases and manipulate the disclosure of information, as well as the design of existing market rules and institutions. This research area deals with these issues and, therefore, constitutes the foundation for the entire BCCP research program. The main aim of the different tasks is to better understand consumers’ and firms’ incentives under different institutional scenarios.
Recent developments in behavioral economics showed that economic agents frequently make systematic and predictable mistakes. This has not only been firmly established for consumers, but also for managers. Such departures from rational behavior and well-documented biases make us question our understanding of the functioning of markets and raise the question of whether competition alone can ensure consumer benefits or if it will lead to the exploitation of consumers or to avoidable managerial mistakes. Moreover, in many markets consumers are imperfectly informed about the characteristics of goods and services. In experience goods markets, for example, consumers observe quality only after purchase. Even if quality is observable, it may not be legally verifiable meaning that it cannot easily be enforced by legal institutions. No matter the decision to be made, surely there are many experts offering advice. This applies to financial decision-making – for example rating agencies, equities analysts or bank-based financial advisors – as well as many other markets. The common feature of the tasks within this research area is to build on these insights and use of micro-founded models of consumer and market behavior coupled with econometric and experimental studies to test their predictions.