Naïve Consumers: Contract Economics

Abstract

Consumers are viewed as a weak contract party by both lawyers and economists, although with some distinctions. The unconscionability theory addresses consumers’ naïvety, to be intended as partial or total incapacity of understanding contract terms, as a reason for public intervention. Economists as well agree that law must protect consumers against sellers’ abuses, especially when contracts contain add-ons or are preprinted and no bargaining is allowed.

How law should intervene is still an open question. On the one hand, lawyers point out that courts should not enforce contract clauses literally but rather should replace them with terms that consumers could have reasonably expected and approved. On the other hand, economists focus on how sellers exploit naïve consumers and warn that regulation may turn out pejorative if it is not able to educate naïve consumers or if it allows the seller to raise the price up when forced to offer good terms.