Behavioral economics and consumer protection in the U.S.: A review: Understanding how psychological factors shape consumer policies and regulations

Abstract

This study explores the integration of behavioral economics into consumer protection policies, focusing on the influence of psychological factors on consumer behavior and the implications for market efficiency and consumer welfare. Employing a systematic literature review and content analysis, the research scrutinizes peer-reviewed articles, policy reports, and case studies from 2008 onwards to identify the impact of cognitive biases and heuristics on consumer decisions and the effectiveness of behavioral interventions in enhancing consumer protection. The methodology hinges on a comprehensive search strategy, with inclusion and exclusion criteria meticulously applied to ensure the relevance and quality of the literature reviewed. Key findings reveal that psychological factors significantly affect consumer choices, often leading to outcomes that deviate from optimal welfare and efficiency. Behavioral economics, through its insights into consumer behavior, offers innovative approaches to policy-making that can mitigate these effects, enhancing consumer protection and market functionality. The study identifies challenges and opportunities in the evolving landscape of consumer protection, emphasizing the need for adaptive regulatory frameworks and the potential of digital technologies to understand and influence consumer behavior. Final recommendations advocate for dynamic policies, consumer education, and collaboration among stakeholders to address emerging consumer risks effectively. The study concludes that behavioral economics holds transformative potential for consumer protection, urging continued exploration and innovation in policy development to safeguard consumer interests in a rapidly changing market environment.