Jim Hawkins Paper: Using Advertisements to Diagnose Behavioral Market Failure

Jim Hawkins of Houston has written Using Advertisements to Diagnose Behavioral Market Failure.  Here is the abstract:

In imperfect markets where consumers have malleable preferences and bounded rationality, advertising has the potential to increase demand for products through persuasion and through information that exploits systematic mistakes that consumers make.  Scholarship on advertising has criticized it on these grounds, but the legal and economic literature has missed advertising’s enormous potential to reveal consumers’ behavioral biases in specific markets.  This Article argues that researchers and policymakers should use advertising to detect and diagnose behavioral market failure.  

As a case study of my strategy, I offer the first comprehensive empirical study of advertisements for payday and title loans.  These are short-term, small-dollar, high-cost loans, and the majority of consumers using them are lower-income Americans.  I report on research I conducted that coded information on advertisements at 189 payday and title lending storefronts and 27 websites.  Using the advertisements to diagnose behavioral market failure, I find evidence that firms use advertising to exploit the ways in which payday and title lending customers deviate from the rational actor model.  Finally, I offer policy suggestions aimed at fixing this market failure.

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