M. Ryan Calo, Digital Market Manipulation; University of Washington School of Law Research Paper No. 2013-27; 2013-08-15; 53 pages.
Jon Hanson and Douglas Kysar coined the term “market manipulation” in 1999 to describe how companies exploit the cognitive limitations of consumers. Everything costs $9.99 because consumers see the price as closer to $9 than $10. Although widely cited by academics, the concept of market manipulation has had only a modest impact on consumer protection law.
This Article demonstrates that the concept of market manipulation is descriptively and theoretically incomplete, and updates the framework for the realities of a marketplace that is mediated by technology. Today’s firms fastidiously study consumers and, increasingly, personalize every aspect of their experience. They can also reach consumers anytime and anywhere, rather than waiting for the consumer to approach the marketplace. These and related trends mean that firms can not only take advantage of a general understanding of cognitive limitations, but can uncover and even trigger consumer frailty at an individual level.
A new theory of digital market manipulation reveals the limits of consumer protection law and exposes concrete economic and privacy harms that regulators will be hard-pressed to ignore. This Article thus both meaningfully advances the behavioral law and economics literature and harnesses that literature to explore and address an impending sea change in the way firms use data to persuade.
- The digitization of commerce dramatically alters the capacity of firms to influence consumers at a personal level.
- Behavioral economics furnishes the best framework by which to understand and evaluate this emerging challenge; qualified as “once BE integrates the full relevance of the digital revolution”
- Forward Claims
- <quote>The consumer of the future is a mediated consumer—she approaches the marketplace through technology designed by someone else.</quote>
- <quote>This permits firms to surface the specific ways each individual consumer deviates from rational decision-making, however idiosyncratic, and
leverage that bias to the firm’s advantage.</quote>
- <quote>Firms do not have to wait for consumers to enter the marketplace. Rather, constant screen time and more and more networked or “smart” devices mean that consumers can be approached anytime, anywhere.</quote>
- Consequences of Mediation
- Technology captures and retains intelligence on the consumer’s
interaction with the firm.
- Firms can and do design every aspect of the interaction with the consumer.
- Firms can choose when to approach consumers, rather than wait until the
consumer has decided to enter a market context.
- The Argument
- There is nothing new here
- In every age, in every generation
- Someone is opines about odious behavior of the the grubby trades.
- Or not; there is something new here, actually
- An exceptionalism argument
- digital market manipulation is different (exceptional)
- The combination of three elements
- The bright line test is: systemization of the personal
coupled with divergent interests.
- Someone might get hurt (“there might be harms”).
- A precautionary principle, a limiting principle, and justifies intervention.
- Expansively: <quote>What, exactly, is the harm of serving an ad to a
consumer that is based on her face or that plays to her biases? The
skeptic may see none. [The case is made] that digital market
manipulation, [as defined], has the potential to generate economic and privacy harms, and to damage consumer autonomy in a very specific way.</quote>
- The Harms
- Without the fancy-speak: <quote>Digital market manipulation presents an easy case: firms purposefully leverage information about consumers to their
disadvantage in a way that is designed not to be detectable to them.</quote>
- Ryan Calo, The Boundaries of Privacy Harm; In Indiana Law Journal; Volume 86, No. 3; 2011; available 2010-07-16; 31 pages.
- unwanted observation
- unwanted mental states.
- “limiting principle”
- “rule of recognition”
- Market failure, writ large
- Externalities generated, writ large
- Regressive distribution effects, a type of market failure
- Costs, Burdens
- Costs-to-avoid by consumers.
- Differential pricing against unwary customers
e.g. imputed or estimated ability to pay or perceived willingness to pay as indicated by purchase behavior or visit frequency.
- Inefficiences, a type of market failure
- Privacy [harms to it]
- Made manifest as differential pricing.
- Loss of control (whatever that means).
- Information sharing, between firms.
- Autonomy [harms to it]
- Something gauzy-vague about
- the encroachment upon play or playfullness.
- the act of being watched changes the behavior of the subject (who is an object, being watched).
- Threat Model: <quote>[The] concern is that hyper-rational actors armed with the ability to design most elements of the transaction will approach the consumer of the future at the precise time and in the exact way that
tends to guarantee a moment of (profitable) irrationality.</quote>
- Concessions, commitments & stipulations
- Around the Harms, generally
- No harm exists if the subject has no knowledge of it or concept of it as “harm” as such; the hidden “hidden Peeping Tom” principle.
- All this could inure to the benefit of the consumer, maybe.
- Around the harm to Autonomy, specifically
- Autonomy is defined as the absence of vulnerability; thus adding vulnerability necessarily decreases autonomy.
- The Law (consumer protection) has an interest in vulnerability and autonomy
- On a forward-looking, hypothetical & precautionary basis; i.e. with X in hand, it might become possible to Y.
- On a backward-looking, as-is or as-was basis; i.e. damage Y was done, is being done.
- Around the notional degree or kind of the behaviors:
- <quote>We are not talking about outright fraud here―in the sense of a material misrepresentation of fact―but only a tendency to mislead.</quote>
- <quote>A consumer who receives an ad highlighting the limited supply of the product will not usually understand that the next person, who has not been associated with a fear of scarcity, sees a different pitch based on her biases. Such a practice does not just tend to mislead; misleading is the entire point.</quote>
- The Free Speech Trump Card
- Political Speech
- Commercial Speech
- “The Press” must obey all other laws.
- Mere data gathering is not “speech”, as such.
- Data gathering for speech, is still not speech.
- Internal: Customer Subject Review Boards
- An institutional oversight organ; like an IHRB, an Ombudsman
- A body of ethical principles and practical guidelines (like The Belmont Report)
- External: Remove the conflict of interest
- Avoid the (targeted) advertising business model
- Avoid the (personalization) aspect of the user experience
- Fee-based, subscription-based services.
M. Ryan Calo; Code Nudge or Notice; University of Washington School of Law Research Paper No. 2013-04; 2013-02-13; 29 pages.
At some point though one is just negotiating on price
- <quote>For, say, ten dollars a month or five cents a visit, users could opt out of the entire marketing ecosystem.</quote>
- $120/year to whom?
- $120/year across what scope?
Attributed to Vance Packard
- When you are manipulating, where do you stop?
- Who is to fix the point at which manipulative attempts become socially undesirable?
- Throat Clearing & Contextualization
- Individuals & Institutions (mostly in order of appearance)
- Jon Hanson
- Douglas Kysar
- Vance Packard, the works of
- Eli Pariser
- Joseph Turow
- Dan Areily
- Christine Jolls,
- Cass Sunstein
- Richard Thaler
- Lior Strahilavitz
- Ariel Porat
- Ian Ayer
- George Geis
- Scott Peppet
- Amos Tversky
- Daniel Kahneman
- Herbert Simon
- Cliff Nass
- Chris Anderson
- Alessandro Acquisti
- Christopher Yoo
- Maurits Kaptein; persuasion profiling
- John Hauser
- Glen Urban
- John Calfee
- Dean Eckles, Facebook; persuasion profiling
- Oren Bar-Gill
- Russell Korobkin
- Andrew Odlyzko
- Neil Richards
- Tal Zarsky
- Julie Cohen
- Jane Yakowitz Bambauer
- B. J. Fogg; captology, Persuasive Technology
- Matthew Edwards
- Peter Swire
- Richard Craswell
- Viktor Mayer-Schönberger
- Kenneth Cukier
- John Rawls
- Theory Bodies
- Behavioral Economics (BE)
- Prospect Theory
- Dual Process Theory
- Fast Thinking (contra Slow Thinking)
- Branded Concepts (a tour of the terms)
- Libertarian Paternalism
- Predictable Irrationality
- Disclosure Ratcheting
- Bounded Rationality
- The End of Theory
- Correlation trumping causality; Chris Anderson)
- Outlier detection
- Outlier modeling
- Information Overload
- Phenomena “wear out”
- Personification & anthropomorphization of “Information” to justify irrationality
- As Villain
- As Hero
- As Victim
- Information [overload] management strategies
- Viceral Notice
- Biases, debiasing
- A/B Testing
- General Bias
- Specific Bias
- Means-based targeting
- Persuasion profiling (motivation discovery & exploitation)
- Consent, limits of consent
- contract term can become “unconscionable”
- enrichments can become “unjust”
- influence can become “undue”
- dealings can constitutes “fair” dealing, or not
- strategic behavior can constitute “bad faith”
- interest rates can become “usurious” (usury)
- higher prices an become “gauging”
- Market Failure
- inefficient markets
- novel (new) sources of market failure (ah! I found another one!)
- Behaviorally-informed [contract] drafting techniques.
- The “hidden Peeping Tom” principle (puzzle, conundrum, stance)
i.e. the woman doesn’t lose any virtue if she doesn’t know she was watched.
- Caveat emptor
- Mandatory Disclosure
- “facilitation” (contra “friction”)
- Informed Consent
- “digital nudging”
- “publicity principle”
- Devices, Formulae, Practices
- Learned Hand Formula (calculus of negligence).
- Belmont Report
- principles of “beneficence” and “justice”
- Beneficence is defined as the minimizztion of harm to the subject and society while maximizing benefit—a kind of ethical Learned Hand Formula.
- Justice prohibits unfairness in distribution, defined as the undue imposition of a burden or withholding of a benefit.
- Institutional Human Review Board (IHRB)
- Internal “algorithmists”
- Teleology & Goals
- (Online advertising) is “ends-based”
- Advertisers aspire to match the right ad to the right person [at the right time]
- Argot (general trade-specific terms)
- “atmospherics,” the layout and presentation of retail space.
- “preference marketing,” against a consumer’s stated or volunteered preferences.
- “behavioral marketing,” against a consumer’s observed preferences.
- Epithets, Insults & Snidenesses
- “Kafakesque”, attributed to Daniel Solove, and concurred by Calo.
- “the feel of a zoetrope, spinning static case law in a certain light to
create the illusion of forward motion” see page 39.
- “Elephants” vs “mice” with 2x opinements from Peter Swire.
- “digital divide”
- Definition of market manipulation
… of note [it's a legal paper so the thing is largely footnotes]. No order.
All this rests upon the definition of Market Manipulation of Hanson & Kysar.
Taking Behaviorism Seriously, Part I
Jon Hanson, Douglas Kysar; Taking Behavioralism Seriously: The Problem of Market Manipulation; In New York University Law Review; Volume 74; 1999; page 632; 1999; Also Harvard Public Law Working Paper No. 08-54; 118 pages.
For the past few decades, cognitive psychologists and behavioral researchers have been steadily uncovering evidence that human decisionmaking processes are prone to nonrational, yet systematic, tendencies. These researchers claim not merely that we sometimes fail to abide by rules of logic, but that we fail to do so in predictable ways.
With a few notable exceptions, implications of this research for legal institutions were slow in reaching the academic literature. Within the last few years, however, we have seen an outpouring of scholarship addressing the impact of behavioral research over a wide range of legal topics. Indeed, one might predict that the current behavioral movement eventually will have an influence on legal scholarship matched only by its predecessor, the law and economics movement. Ultimately, any legal concept that relies in some sense on a notion of reasonableness or that is premised on the existence of a reasonable or rational decisionmaker will need to be reassessed in light of the mounting evidence that humans are “a reasoning rather than a reasonable animal.”
This Article contributes to that reassessment by focusing on the problem of manipulability. Our central contention is that the presence of unyielding cognitive biases makes individual decisionmakers susceptible to manipulation by those able to influence the context in which decisions are made. More particularly, we believe that market outcomes frequently will be heavily influenced, if not determined, by the ability of one actor to control the format of information, the presentation of choices, and, in general, the setting within which market transactions occur. Once one accepts that individuals systematically behave in nonrational ways, it follows from an economic perspective that others will exploit those tendencies for gain.
That possibility of manipulation has a variety of implications for legal policy analysis that have heretofore gone unrecognized. This article highlights some of those implications and makes several predictions that are tested in other work.
Taking Behaviorism Seriously, Part II
Jon Hanson, Douglas Kysar; Taking Behavioralism Seriously: Some Evidence of Market Manipulation; In Harvard Law Review; Volume 112; 1999; page 1420; Also Harvard Public Law Working Paper No. 08-52; 149 pages.
An important lesson of behavioralist research is that individuals’ perceptions and preferences are highly manipulable. This article presents empirical evidence of market manipulation, a previously unrecognized source of market failure. It surveys extensive qualitative and quantitative marketing research and consumer behavioral studies, reviews common practices in settings such as gas stations and supermarkets, and examines environmentally oriented and fear-based advertising. 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. Such market manipulation may justify moving to enterprise liability, the regime advocated by the first generation of product liability scholars.