Behavioural Economics in Unfair Contract Terms Cautions and Considerations

Abstract

This paper provides an overview of the economic approach to unfair contract terms whereby various economic approaches are distinguished. Addition is paid to the neo classic perspective on unfair contract terms as well as to the approach followed by information economics. Then evidence is presented based on behavioral law and economics showing that to a large degree traditional remedies advanced in information economics (like mandatory information disclosure) may not be able to effectively debiase consumer perceptions. Empirical evidence seems to indicate that, although the results are very context specific, consumers suffer from 'signing without reading' as a result of which many unfair contract terms can survive in the market. Hence, some suggestions are formulated based on 'regulatory paternalism' to nudge consumers towards more efficient decisions inter alia via collective agreements on unfair contract terms from which well-informed consumers could opt outs.

Keywords: behavioral economics, behavioral law and economics, standard contract terms, unfair contract terms, mandatory disclosure, information economics

JEL Classification: K12, K32