SEMINAR CANCELLED Perspectives on Confusopoly Markets, General Equilibrium and Trust

Consumers in many markets face increasing numbers of providers, options and plans that lead to information overload and confusion which results in choices that deviate from the utility maximization of rational agents. The recent rise in Confusopoly markets, where firms increase choices dramatically, reduces a firm’s need to compete on price and thus increases profits. Examples include financial services, insurance products, health care services, telecommunications and electricity. Extensive scientific evidence on choice overload from decades of Psychology and Behavioural Economics (BE) research has uncovered several decision-making biases to help understand deviations from the utility maximizing choice. This research has led to the development of behavioural insights units across the world that are testing policies and advising policy-makers to nudge decision-makers towards choices to improve their utility. In this presentation, I will first highlight the current BE approaches being used in practice to address biases in choices in Confusopoly markets. I will then argue that these approaches are largely devoid of the “Economics” in the BE units and that without a solid economic foundation, most of these BE efforts will ultimately fail to account for many concerns relating to general equilibrium and welfare considerations and will thus have (at best) a limited short-term positive value. I will then discuss the most promising directions that are on the near-term horizon, but currently lack almost any careful academic or empirical support to chart a clear path forward. In stepping through the most promising next generation of BE, I will argue that perhaps the single biggest obstacle for improving consumer welfare in Confusopoly markets will be consumer trust in institutions, and thus better understanding the determinants of this trust will be of critical academic and practical value.