Taking Behavioralism Seriously: Some Evidence of Market Manipulation
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ARTICLE TAKING BEHAVIORALISM SERIOUSLY: SOME EVIDENCE OF MARKET MANIPULATION Jon D. Hanson & Douglas A. Kysar TABLE OF CONTENTS INTRODUCTION ..................................................................... 1423 A. The Development of Products Liability Scholarship ...........................1................... 423 B. The Problem of Market Manipulation ............................................................ 1425 C. Overview. ............................................................ 1427 I. SOME MODEST MARKET EVIDENCE OF CONSUMER MANIPULATION ....................... 1428 A. An Overview of Marketing Research .......................... .............................. 1429 I. Quantitative Research: Listening to the Market ...........................................1430 2. Qualitative Research: Manipulating the Market . .1......................................... 432 3. Broader Implications of the Consumer Culture.............................................1 437 B. Evidence of Manufacturer Manipulation of General Product Perceptions ......1 439 C. Evidence of Manufacturer Manipulation of Product Risk Perceptions ............... 1451 I. Food Products. ..................................................... 1451 2. Pharmaceutical Drug Products ...................................................... 1455 3. Environmentally Marketed Products. ...................................................... 1 459 4. Products Marketed to Thrillseekers....................................................... 146i 5. Products Utilizing Fear Appeals ............................ ........................... 1462 D. Summary. ........................................................ 1466 II. A CASE STUDY IN MANUFACTURER MANIPULATION: THE TOBACCO INDUSTRY ....1 467 A. A Sample of Industry Conduct. .1................. 470 I. Creating Demand: The Industry's Marketing Tiumphs ..............................1 470 (a) The Ascendancy of Cigarettes..................................................1 471 (b) Promotional Efforts to Solidify the "Smoking Lifestyle" . 1 471 (c) Health Reassurance Cigarettes. .................................................1 473 (i) Filter-Tipped Cigarettes ....................... ........................... 1474 (ii) Low-Tar and Low-Nicotine Cigarettes ...................................1...... 475 (d) Recruiting New Smokers .................................................. 1479 2. Creating Controversy: The Industry's Public Voice on Health Issues ........1 483 (a) The Big Scare and the Industry's Coordinated Response ....................1 484 (b) A Deliberate Effort to Confuse: "Doubt Is Our Product" . 1 488 (i) Projecting Independence................................................... 1489 (ii) Denying Causation................................................... 1492 (iii) Attacking the Opposition..................................................1 494 3. Suppressing Evidence: The Industry's Private Knowledge of Health Issues..................................................1 496 (a) The Link Between Cigarettes and Disease .............................................1 496 (b) The Role of Nicotine and Addiction................................................... 1 500 B. Reassessing the Debate over Smoker Risk Perceptions ....................................... 1502 I. The Irrelevance of Market Manipulation. ................................... 1503 2. The Actual Success of Market Manipulation. ..................................O1505 (a) Market Evidence .................................... 505 (i) Manufacturer Conduct................................... 1506 (ii) Consumer Conduct..................................... 150 (b) Non-Industry Sponsored Survey Evidence ................................... 1511 (i) Evidence of Optimism Bias .................................... I5II (ii) Imperfect Brand-Specific Information..................................... i6 (iii) Imperfect Relative-Risk Information................................... .1517 I420 '9991 TAKINGBEHA VIORALISMSERIOUSLY I42 I (iv) Imperfect Information Regarding the Extent and Nature of the Harm ............................................... I520 (v) Underestimation of Addiction . ................................. I52 I (vi) Imperfect Attributional Information and the Role of Reciprocity ............................................... 1524 (c) Bias and Manipulation in Viscusi's Survey Evidence .......................... I527 (i) Asking the Question Wrong . .................................. I528 (A) Question-Order Elicitation Effects ................................... I529 (B) The Elicitation Effects of Specifying Risks.......................... I532 (C) The Elicitation Effects of Response Scales .......................... 1535 (D) The Elicitation Effects of Response Modes ......................... 1537 (ii) Asking the Wrong Question . ................................... I542 (A) The Imprecision of Probabilistic Estimates ......................... I543 (B) The Dangerous Illusion of Precision..................................... I544 (C) The Potential Benefits of Qualitative Assessments .............1 546 (iii) Selective Recognition of the Role of Behavioralism and Manipulation ................. ..................................... 1548 C. Some Thoughts on Competition and Market Power . ................... I55I III. A POTENTIAL RESPONSE TO MARKET MANIPULATION: ENTERPRISE LIABILITY... I553 A. Taking Enterprise Liability Seriously ............................................. I555 I. The Basic Case for Enterprise Liability..................................... ........ I555 2. Stimulating a Better Warning System............................................. I558 3. A Few Words of Caution ............................................. 1565 B. The First Generation of Products Liability Scholars Revived .............................. 1567 CONCLUSION .................... .................................................. 157I TAKING BEHAVIORALISM SERIOUSLY: SOME EVIDENCE OF MARKET MANIPULATION Jon D. Hanson* & Douglas A. Kysar** Over the last ten to fifteen years, economists and legal scholars have become increasingly interested in and sensitive to behavioralist insights. In a companion article, Jon Hanson and Douglas Kysar argued that those scholars have nevertheless given short shrift to what is, at least for policymaking purposes, perhaps the most important lesson of the behavioralist research: individuals' perceptions and preferences are highly manipulable. According to Hanson and Kysar, one theoretical implication of that insight for products liability law is that manufacturers and marketers will manipulate the risk perceptions of consumers. Indeed, to survive in a competitive market, manufacturers and marketers must do so. In this Article, Hanson and Kysar present empirical evidence of market manipulation - a previously unrecognized source of marketfailure. The Article begins by surveying the extensive qualitative and quantitative marketing research and consumer behavioral studies that discern and influence consumer perceptions. It then provides evidence of market manipulation by reviewing common practices in everyday market settings, such as gas stations and supermarkets, and by examining familiar marketing approaches, such as environmentally oriented and fear-based advertising. Although consumers may be well-aware of those practices and approaches, they appear to be generally unaware of the extent to which those tactics are manipulative. The Article then focuses on the industry that has most depended upon market manipulation: the cigarette industry. Through decades of sophisticated marketing and public relations efforts, cigarette manufacturers have heightened consumer demand and lowered consumer risk perceptions. Because consumers are aware that smoking may pose significant health risks, the tobacco industry's success in manipulating risk perceptions constitutes especially strong evidence of the power of market manipulation. The Article concludes by arguing that the evidence of market manipulation may justify moving to a regime of enterprise liability. Indeed, according to Hanson and Kysar, the evidence of market manipulation confirms the intuitions of the first generation of product liability scholars, who worried about manufacturers' power to manipulate and called for just such a regime. Professor, Harvard Law School. Law Clerk, Judge William G. Young, United States District Court for the District of Massa- chusetts. B.A., Indiana University; J.D., Harvard Law School. We are grateful to Cathy Ahn, Emma Clark, Danny David, Grant Dixton, Shaun Goho, Stew- art Richardson, Jeff Smith, and Nick Walsh for superb research assistance; to Carol Igoe for out- standing secretarial assistance; to Ana C. Reyes, Paul Slovic, and participants at the Law and Economics Workshop at Harvard Law School for helpful comments. In addition, this Article has benefited greatly from conversations with Daniel Kahnemann and Neil Weinstein, extended con- versations with Baruch Fischoff and Paul Slovic, and years of conversations and collaboration with Steven Croley and Kyle Logue. Many lawyers involved in tobacco litigation - including Wayne Dennison, Jon Ferguson, Mike Gruenlo, Anne Ritter, Jim Solimano, Mike Withey, and especially Allison Quinn, Tom Sobol, and Jennifer Wallner - have very generously supplied us with piles of documents as well as copies of relevant legal briefs and expert opinions from both sides of the litigation. We also gratefully acknowledge the Harvard Law School Summer