Behavioral Science and Consumer Standard Form Contracts

Abstract

Asymmetric information is a serious threat to the market of consumer standard form contracts. Yet, legislatures, courts, and market-forces do not provide an adequate solution to this threat. This Article argues that a considerable part of this failure is due to the fact that important and relevant social science insights regarding consumers' behavior is widely overlooked. This gap results in the prevalence of unfair or inefficient consumer form contract provisions. More profoundly, it entails that current approaches towards consumer contracts are fundamentally flawed and bound to reach erratic and sometimes unjust conclusions.

Cognitive biases and consumers' actual behavioral patterns should have an important role - descriptively and normatively - in the law of consumer contracts. This Article explains how psychological phenomena contribute (i) to consumers' tendency not to read form contracts even when by doing so they fail to maximize their utility; (ii) to consumers' inability to evaluate correctly contract terms once they do read them; and as a result (iii) to sellers' capability of manipulating consumers.

The end point of this discussion is twofold: First, it seeks to expand our understanding regarding the inadequacy of current approaches to consumer contracts and the harm that consumers are exposed to when actual behavioral patterns are ignored. Secondly, it provides policy makers with better insights as to the way in which contract law should design the alternative approach to consumer contracts.

Keywords: Consumer standard form contracts, behavioral law and economics, law and economics

JEL Classification: K12, K20