TITLE: Taking Data Seriously: Market Manipulation In The Digital Age
ABSTRACT: More than a decade has passed since Jon Hansen and Doug Kysar developed the concept of “market manipulation,” i.e., the exploitation of non-00ad‐rational consumer tendencies to influence or determine a market. Market manipulation is an elegant way to think about a range of consumer problems and the theory is widely cited by academics. But its impact on regulatory policy has been modest. If anything, regulators have themselves developed a taste for “nudging” citizens toward policy goals.
One reason why market manipulation has not received sustained scrutiny is that its effects, while systematic, are relatively limited. Perhaps consumers pay a little extra for a service, for instance, or purchase more on impulse. But at least three recent phenomena—all intimately related to data—may dramatically accelerate market manipulation in the coming years.
First, so-00ad‐called “big data” permits firms to spot cognitive biases far more efficiently. Behavioral economists and firms have historically looked to lab experiments to surface cognitive biases one or two at a time. The analysis of large data sets allows firms to identify deviations from rational decision-00ad‐ making much more efficiently, without regard necessarily to the mechanism of bias.
Second, firms can move from ad matching to “persuasion profiling.” We all have cognitive biases, but presumably we do not have the same ones or to the same degree. Recent work by Martin Kaptein and colleagues notes differences in individual effects of specific persuasion techniques and suggests tailoring not only the ends of online advertising (matching the right ad to the right person), but also the means (picking the right strategy of influence for a given person).
Third, firms may discover the potential of “disclosure ratcheting.” Behavioral economists of privacy such as Alessandro Acquisti have shown how framing and other techniques can alter what subjects are willing to disclose. One of the personal details that consumers could be nudged to reveal is the technique that best persuades them. Thus, firms could deploy general cognitive biases in order to surface individual ones, which they could then use to persuade individual consumers to another end.
Thus invigorated, market manipulation begins to present substantial harm to individuals and society that regulators can scarcely ignore. Better privacy laws can mitigate the impact, but it may prove necessary to tackle the growing information asymmetries between firms and consumers head on through a combination of transparency, education, and perhaps even a duty of fair dealing.