The EU Consumer Policy on the Digital Market: A Behavioral Economics View

Written by Chronis Lalas, lalaschronis@gmail.com

Nowadays, the Internet is of great importance for peoples’ lives. People use it to make up their mind and improve their daily actions. The concept of shopping was inevitably affected, as well. E-commerce has many positive effects on both buyers and sellers, thus consumers could have saved a lot of time and money if they were more well-informed and less biased about purchases on the web.

According to a report by Nielsen titled ‘Trends in Online Shopping a global Nielsen consumer report’ (2008, p.1):

“According to a recent global survey conducted by The Nielsen Company, over 85 percent of the world’s online population has used the Internet to make a purchase, up 40 percent from two years ago, and more than half of Internet users are regular online shoppers, making online purchases at least once a month.’’

Even though these global figures are constantly rising, Europe is not close to leading the race yet. Therefore, European Commission is still trying to figure out the problems that EU consumers face in purchasing online, in the ‘European Consumer Agenda (2012), titled ‘A European Consumer Agenda – Boosting Confidence and Growth’, in which the European Consumer Policy is debated.

According to page 5 of this Agenda:

“E-commerce can deliver considerable welfare gains since consumers have at least twice the choice when shopping online rather than offline. Cloud computing in particular can offer more flexible services that are device or platform independent. It has been calculated that, if e-commerce in goods reaches 15 % of retail sales and all Single Market barriers are removed, the overall gain for consumers would be around EUR 204 billion (1.7 % of EU GDP).”

In this document, the European Commission describes, amongst other issues, the problems that arose in the 21st century because of economic and societal changes in the European area, as well as the solutions they suggest. Such issues are the ‘digital revolution’ (which has already been mentioned), the social exclusion, and the knowledge deficit of the European consumers.

All these problems and their suggested solutions are related, and could be explained by the principals of Behavioral Economics. Three of them will be highlighted in this article.

The Power of Habits

According to the European Consumer Agenda (2012, p.5):

“The internet has fundamentally changed the way consumers shop and businesses advertise and sell their goods and services. It has created innovative ways of organizing, accessing, sharing and evaluating information”

Based on both of aforementioned quotes, it seems that a large increase of digital purchases would have a significant positive impact for European consumers, but there’s a lack of motivation for them to do so.

Behavioral sciences could shed light, in that case, on one of the cognitive effects, which is mainly based on psychology, Default Bias. Default Bias suggests that humans usually choose the default option that is available to them, in order to avoid the discomfort of complex choices.

That’s basically the bias that the European consumers fall into. Even though the positive aspects of e-commerce, such as discounts, saving time or finding stuff which are available only via the web, are quite measurable and can be enjoyed in a recurring manner, yet consumers tend to continue making purchases in conventional ways, unsophisticatedly avoiding to do research or change their habits.

It’s all about information

According to the European Consumer Agenda (2012, p.6):

“In today’s fast changing world, consumers are often overloaded with information but they do not necessarily always have the information they need.”

So what’s missing here is the appropriate information for the consumers, so that they can make the best decisions. Here’s where the next behavioral bias comes in, Ambiguity Effect [1], which is a cognitive bias where decision-making is affected by lack of information, or “ambiguity”. One possible explanation of the effect is that people use rules of thumb (heuristics) to decide, so they can avoid getting confused when vital information is missing.

The most important factor of that information deficit is the legislative framework.

According to the European Consumer Agenda (2012, p.6):

“The Empowerment Survey published in 2011 showed that one in four European consumers do not feel confident and more than one in three does not feel knowledgeable.”

The European Consumer Policy provides solutions by launching campaigns, such as the EU-Wide campaign, according to the European Consumer Agenda (2012, p.9):

“[…] an EU-wide campaign to increase knowledge about consumer rights and interests […]”

In that case, a well-informed consumer will be more confident to make online purchases. Other suggestions/solutions of the European Commission are the ‘Common European Sales Law’ and the ‘Data Protection Reform package’. The seeking outcomes of all these actions are: increasing trust in the digital market, improving information, and raising awareness of consumer rights and interests among both consumers and traders (2012, p. 4, 9).

Social Exclusion

According to the European Consumer Agenda (2012, p.5):

“[…] our population is ageing, markets are becoming increasingly complex and some people may neither have the opportunity nor the ability to master the digital environment.”

As far as European Commission is concerned about the EU consumers who would be characterized as socially excluded from the digital environment, it would be vital for them to understand and take into regard the various effects of the principals of Social Norms. That is, everyone wants to be a part of a team; it’s the human nature. Therefore, they dislike the opposite, the exclusion from and neglect by a social team or community.

Practically, the EU consumers have to be somehow persuaded that ‘buying products online is the new trend’ and everyone who does so is apparently included in that social team, or even social elite.

Consumer organizations could, therefore, get involved in creating bridges across EU consumers and the digital market. But, what we should take into consideration, as the European Commission states in their ‘Agenda’ (2012, p.6):

“Consumer organisations play an essential role in improving consumer information and knowledge, but their situation varies enormously between Member States. Those operating at national level, in particular, often lack resources and expertise, and their role in channeling and filtering consumer concerns are not always properly recognized.”

In conclusion, it seems that many of the EU Consumer Policy suggestions to the problems that consumers face seem to be inextricably connected with Behavioral Economics principles.

There is a behavioral research center, the ‘Joint Research Centre of the European Commission’, which makes behavioral studies for a wide variety of issues inside Europe.

More specifically, according to the report of 2013 which is titled ‘Applying Behavioural Sciences to EU Policy-making’ (p.1):

“Well-designed behavioural studies can offer useful insights to policy-makers by generating the evidence required to improve policies. Such studies are applicable to a wide range of EU policy areas, wherever a behavioural element exists. Whether policy-makers aim at changing behaviour or designing better regulations, greater knowledge on how people are likely to behave should serve them well.”

To sum up, there must be an intentional correlation between the EU Consumer Policy and Behavioral Economics, even if that’s not stated anywhere explicitly. The outcome of that correlation could only have positive impacts for the EU consumers in both terms of wealth and welfare.

Chronis Lalas

References

  • NIELSEN. (2008) Trends in Online Shopping a global Nielsen consumer report.

[Online] Available from:

http://www.freshgraphics.net/BlogLinks/GlobalOnlineShoppingReportFeb08.pdf

[Accessed: 30th September 2015].

  • EUROPEAN COMMISSION. (2012) A European Consumer Agenda – Boosting Confidence and Growth. Brussels, 22.5.2012

[Online] Available from:

http://ec.europa.eu/consumers/archive/strategy/docs/consumer_agenda_2012_en.pdf

[Accessed: 30th September 2015].

  • SABIO LANTZ (2010) The Default Bias 

[Online] 03.11.2010 Available from:
https://triangulations.wordpress.com/2010/03/11/the-default-bias

[Accessed: 30th September 2015].

  • [1] DANIEL ELLSBERG (1961) Risk, ambiguity, and the Savage axioms. Quarterly Journal of Economics, Vol. 75, No. 4, p. 643-699
  • ALAN D. BERKOWITZ (2004) The Social Norms Approach: Theory, Research and Annotated Bibliography. 

[Online] August 2004 Available from:

http://www.alanberkowitz.com/articles/social_norms.pdf

  • EUROPEAN COMMISSION. JRC SCIENTIFIC AND POLICY REPORTS. (2013) Applying Behavioural Sciences to EU Policy-making.

[Online] Available from:

https://ec.europa.eu/jrc/sites/default/files/behaviouralsciencepolicybriefonline-spreads.pdf

[Accessed: 30th September 2015].

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Join the Hive!

Featured Stings

Banking Union: ECOFIN and Parliament ready to compromise

How to provide health education and thus create better health systems

This is how people in Europe are helping lead the energy charge

What changes in the EU as from today

EU to spend €135.5 billion in 2014 or 6.5% less than this year

Eurozone bank rescues ‘a la carte’ until 2015 then only bail-ins

The EU Commission openly repudiates the austere economic policies

Public opinion misled by the Commission on air transport safety

EU Commission says falling labour remuneration leads to deflation and damages growth prospects

EU unfolds strategy on the Egypt question

“A sustainable economy, low-carbon, resource-efficient, resilient and more competitive on the global stage”, EU Commissioner Vella in a Sting Exclusive

From inconvenience to opportunity: the importance of international medical exchanges

“Decisions taken in the coming weeks will shape Europe’s experience of the internet”, Joe Mcnamee from EDRi says live from European Business Summit 2015

MasterCard @ MWC14: Innovation in times of regulatory uncertainty

Fake news and Freedom of Press: can the EU ever find the fine line?

No recovery for EU economy in sight and a Brexit can aggravate things for everyone

EU to gain the most from the agreement with Iran

TTIP’s 11th round starts in Miami but EU-US businesses see no sunny side

Brexit talks stalled at launch; issues with European Court’s authority in Britain

EU finally agreed to cut roaming charges in 2017 but criticism is always there

South Korea: A cherished partner for the EU

Refugee crisis update: Commission still in panic while Turkey is to be added in the equation

Paris, Washington, IMF against Berlin and ECB on money and interest

EU Commission challenges Berlin by proposing breakthrough legislation on banks

France-Germany: Divided in Europe, USA united in…Iran

The US and EU decisively oppose Erdogan’s plans for Turkey and beyond

Europe might not avoid new partitioning on Ukrainian crisis

Lithuania finds the ways to maintain its energy security

Who cares more about taxpayers? The US by being harsh on major banks or the EU still caressing them?

“TTIP can boost the European project”; the Sting reports live from EBS 2015 on TTIP

Europe to turn the Hamburg G20 Summit into a battlefield

Brussels waits for the Germans to arrive

Cheap sea transport with low cost seafarers

One Hundred Years of Qipao History: from Shanghai to EU

Sweden has a plan to end all traffic accident deaths

Can Eurozone stand economic and financial fragmentation?

iSting: Change Europe with your Writing

1 million citizens try to create a new EU institution

Youth Internationalization: part of everyday life in JADE

COP21 Business update: Companies urge now for carbon pricing as coal is still a big issue

Why Indian students are going abroad to become Doctors?

WEF Davos 2016 LIVE: “Chinese economy has great potential, resilience and ample space for policy adjustment”, China’s Vice President Li Yuanchao reassures from Davos

Stricter rules and tougher sanctions for market manipulation and financial fraud

Why Commissioner Rehn wants us all to work more for less

Why impoverishment and social exclusion grow in the EU; the affluent north also suffers

Access to ‘affordable’ medicines in India: challenges & solutions

Brexit: Britain and the Continent fighting the battle of Waterloo again

Parliament votes reform for better European Co2 market but critics want it sooner than later

EU budget: Will Germany alone manage Britain’s gap?

German elections: Is Merkel losing ground or Shultz is winning?

COP21 Breaking News_05 December: Children Will Bear the Brunt of Climate Change: UNICEF

Poor Greeks, Irish and Spaniards still pay for the faults of German and French banks

EU to Turkey: No other ties than €3+3bn to upkeep refugees

Energy Union: EU’s effort towards a cleaner climate with integrated energy market

The ECB must extend its money stimulus beyond 2018: Draghi reckoning

Trump’s Russian affair spills over and upsets Europe

Prevent future crises and empower youth – now!

European banking stress tests 2014: A more adverse approach for a shorter banking sector

The importance of exchanges for the medical students of the world

Inflation not a problem for Europe

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s