Consumers Lack Cognitive Apparatus? The Need for Rational Research

I didn’t make this one up…

 

Cognitive Handicaps in the Realm of Consumer Privacy.

 

Critical thinking skills and human rights awareness are needed more than ever in research. My review is rather old, but some proponents of behavioral economics are still kicking the consumer square – and with renewed energy.

This article by Professor Dilip Soman and Melanie Kim, MBA, research associate at the Rotman School of Management, University of Toronto Ontario Canada was recently reprinted in revised form in the Toronto Globe and Mail. (Link to the revision is given at the end of the post.) Prof Soman is also appointed by the Privy Council Office in the Canadian Federal Government as a Senior Policy Advisor at the Innovation Hub in Ottawa.

Their story begins with the statement that online privacy breaches by large retailers such as Home Depot and Target are on the increase. Two explanations for the phenomena are presented. The first is summed up as: The more information companies can get from consumers, the more money they can make.

The second claimed force behind the alleged increase in privacy violations is described in a long, and largely unsubstantiated, attack on the mental capacity of consumers. The report blames shoppers for the increase in breaches, asserting that all of us consumers are irrational. The opening examples used by the authors don’t relate well to this notion.

 

Consumers are Irrational?

Hackers stealing Home Depot’s credit and debit card databases are apparently evidence of consumer incompetence. While a shopper with extensive training in risk evaluation might have an advantage in identifying on-line security factors, would even widespread education of this nature prevent criminal activity? How does this illegal activity reflect on the mental capacity of shoppers?

If a bank is robbed, are clients to be diagnosed as cognitively crippled if they continue to do business with banks?

Another example used in the article also misses the point. Regardless of the details, the unexpected result of one teenager’s disclosure of personal information to one retailer (Target), is insufficient evidence to condemn all consumers as mentally incompetent. It doesn’t support the idea that the unfortunate teen is, either. And was the retailer really out of line? With the regulations as they are, it doesn’t seem likely.

 

Appeals to Authority?

 

A mere mention of decades of research in the behavioral sciences, with no citations or references given, is misused to lend credence to idea of widespread lack of cognitive apparatus and motivation in consumers. The deficiencies are said to be complicated by inconsistencies of attitude and behavior. Apparently some people – described as outraged by the events at Home Depot and Target – reveal personal information themselves by posting about their vacations, purchases and whereabouts on Facebook.

The actual inconsistencies are not described and blithely condemned as reckless behavior. What they might have to do with posting on Facebook isn’t revealed, but alleged causes of the unidentified inconsistencies are given:

1 – Consumers are limited processors of information.

 

I have to disagree. Consumer access to clear, relevant, understandable information is what’s limited.

 

2 – Consumers are susceptible to cognitive laziness.

 

Again, I disagree. Conjuring the hasty conclusion of laziness is misleading and prejudiced. Hunger, fatigue, stress, time constraints, illness, lack of information, just to name a few factors, affect human cognition regardless of training, experience, educational or professional level. We know we have to avoid decision-making when under-par, but blunders do happen. Blaming them on laziness is inaccurate.

 

3 – It is difficult for consumers to anticipate the ways in which their information might be made vulnerable.

 

No kidding? Without adequate regulation, even acceptable collection of information is prone to abuse. Consumers shouldn’t have to anticipate. Those who ask for the data should.

 

4 – Consumers are increasingly displaying impulsive behaviour online.

 

No valid evidence is citied for this claim. Instead, the author takes the slippery slope. The spectre of dire consequences due to reckless sharing of extremely sensitive information is strongly promoted, then dubiously associated with impulse buying. Amazon’s one-click shopping button is singled out as the demon.

Amazon doesn’t motivate people to behave irrationally and give up sensitive personal information. Before the one-click button can be used, customers give the usual purchase and shipping information they would provide any other retailer, on-line or off.  Return customers appreciate not having to repeat this process with every visit. Amazon guarantees the security of this necessary information. the company also uses the stored information to streamline order fulfillment. Using the button in no way involves information that shouldn’t be disclosed to the retailer. And how using this button tells anyone whether shoppers are behaving impulsively or not, isn’t explained, either.

 

It’s All In the Interpretation

 

The food and restaurant industries are lauded for improving customer awareness. Grade cards displayed by restaurants in Los Angeles County, California are cited as a public education measure and credited with reducing the number of food poisoning cases. The cards do disclose to potential customers which establishments actually pass inspection. No more guessing. But it wasn’t the consumers that needed educating. Diners getting sick provided all the education required. Their complaints – along with those from the health care system – led to stiffer rules and disclosure requirements for restaurants. Stepped-up government regulations enforced by inspections and fines for poor hygiene reduced the food poisoning cases, not cards in windows.

And did the food industry volunteer to reveal product ingredients and add nutrition labeling? Regulation forced labeling – fuelled by persistent consumer demand  for it. And the demand is ongoing. We should have the right to know what we’re eating – particularly those of us with life threating allergies. And many are opposed to undeclared genetically engineered substances being passed off as natural food. It’s obvious that the majority of manufacturers aren’t about to disclose unless legally required to. Which brings us to the next point:

Pro-Business Bias

 

The authors’ promote the idea that some nudging is all businesses need to get them to try a little harder to protect the information they request.  And perhaps businesses should be held accountable for violations, even though it’s really is all the consumers’ fault. Nice touch.

Development of free-market products to protect consumers is advocated. Safe-guarding of consumer privacy is high-jacked by yet another way to enable profiting while avoiding responsibility. Skip it. Enact and enforce stiff regulations and fines for businesses that ask for, then fail to secure or other-wise abuse, personal information. Businesses that take consumer privacy seriously have nothing to worry about. What works for the food industry will work for the on-line shopping industry.

 

Bottom Line: Who Minds our Minds?

 

It does sound as though the authors would prefer it if everyone just take it for granted that we are so cognitively limited and handicapped, that special measures must be devised to manipulate our choices to ones deemed to acceptable. And who gets to define acceptable, I shudder to contemplate.

 

Links to Rotman School of Business and latest version of the article below:

http://inside.rotman.utoronto.ca/behaviouraleconomicsinaction/about/ Globe and Mail – Leadership Lab

and one more little reminder:

Daniel Kahneman and Underpowered Studies

 

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