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Abstract

Consumer and data protection policies often focus on consent and information disclosure. The purpose of these regulatory strategies is the protection of consumers by reducing some contracting failures, such as asymmetries of information and a lower bargaining power, especially in transactions involving complex issues such as financial products and sensitive personal data. In the past, regulators have responded to privacy and consumer protection by adopting what this article refers to as an “imperfectly informed regime”, in which consumers do not receive full information about the risks associated with their decisions, even if they are still protected through a variety of ex post mechanisms such as the judicial system or a consumer protection authority. More recently, however, several jurisdictions around the world embraced what we refer to as a “perfectly informed regime” for data protection. This approach is based on the idea of providing full disclosure to consumers. This article argues that while this approach represents an improvement, it does not effectively protect consumers given that, unlike sophisticated actors in capital markets, consumers do not generally read or sometimes understand the risks and consequences associated with their financial decisions. Therefore, unless this approach is complemented by various ex post mechanisms to protect consumers, such as the existence of an independent consumer protection authority or an efficient judiciary, there will still be a high risk of opportunism of companies (particularly financial firms) vis-à-vis consumers. As a response to the weaknesses existing in the traditional regulatory strategies to protect consumers, behavioural economists have proposed new approaches based on the idea of ‘smart disclosure’. According to this approach, consumers should understand the risks and consequences of their decisions, usually by requiring firms to provide disclosure in a clearer manner and emphasizing the relevant aspects that may affect the decision made by a consumer. Despite the popularity of this regulatory approach, it will be argued that this system for the protection of consumer also faces some challenges. Yet, it is the most desirable approach in countries without reliable institutions to protect consumers ex post. In countries with efficient mechanisms ex post to protect consumers, however, it will be argued that other traditional approaches to protect consumers, and particular those mainly relying on a system of full disclosure, will be more desirable. Therefore, the article concludes by pointing out, despite the superiority of certain regulatory approaches over others, the optimal choice of the system for the protection of consumers ultimately depends on the particular features of a country.

Digital Object Identifier (DOI)

https://doi.org/10.55496/BAVQ4138

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