Wednesday, January 12, 2011

Lunn and Lyons ESRI: Behavioural Economics and Vulnerable Consumers

Behavioural Economics and "Vulnerable Consumers": A Summary of Evidence
Lunn, Pete / Lyons, Seán
Communications Consumer Panel UK
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Key findings
• The relevant behavioural biases exist across all groups of consumers, but there is variation in their relative strength across groups.
• Evidence from experiments and surveys, which is indicative rather than conclusive, suggests that some groups of consumers are more prone than others to decision-making that deviates systematically from traditional economic assumptions of rational behaviour.
• The strongest evidence concerns people in lower socio-economic groups, who are more inclined towards some biases and tend to score lower on tests of general decision-making competence.
• There is some evidence that older people may also be more prone to certain biases.
• There is too little evidence regarding disabled consumers to draw any conclusions.
• In the market, these differences between groups may be amplified. Consumers who have the same tendency towards a given bias may produce different decisions because the bias interacts with their situation. For instance, older people and people in lower socio-economic groups may receive less marketing information and be more isolated from helpful social networks, making them more likely to fall back on biased rules of thumb.
• The overall impact on consumer welfare may well be detrimental
• More evidence is needed, but especially research examining the influence of behavioural biases that is specific to the communications sector.

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