Exploiting Pre-Existing Beliefs
31 Pages Posted: 22 Apr 2019 Last revised: 26 Jan 2020
Date Written: 2019
Advertisements and product labels for a wide range of consumer and investment products have highlighted product characteristics that some people erroneously believe make the products superior to competitor products. This article argues that these advertisements and labels are deceptive because they imply that those erroneous beliefs are correct. They can be deceptive even if they don’t mention the erroneous beliefs, and they can deceive even people who have no pre-existing beliefs regarding the highlighted characteristic. This deception distorts purchasing and investing decisions, causing consumers and investors financial, and sometimes even physical, harm. Because these advertisements and labels are used for many different products, they are regulated by a number of federal agencies. Their regulatory approach often is to require the advertisement or label to include a disclaimer of the erroneous belief. This article examines the effectiveness of that and other possible regulatory approaches. It argues that often a stronger approach is justified: a prohibition against highlighting a product characteristic about which consumers or investors have an erroneous belief.
Keywords: Consumer Protection, Investor Protection, Deception, Regulation, Advertising
JEL Classification: M37
Suggested Citation: Suggested Citation