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 - Digital Market Manipulation
- Taking Behavioralism Seriously: Some Evidence of the Problem of Market Manipulation

SSRN Papers on Behavioral Economics

Calo, Ryan, Digital Market Manipulation (August 15, 2013). 82 George Washington Law Review 995 (2014), University of Washington School of Law Research Paper No. 2013-27, Available at SSRN: https://ssrn.com/abstract=2309703 or http://dx.doi.org/10.2139/ssrn.2309703

Digital Market Manipulation

Hanson, Jon D. and Kysar, Douglas A., Taking Behavioralism Seriously: The Problem of Market Manipulation (1999). New York University Law Review, Vol. 74, p. 632, 1999, Harvard Public Law Working Paper No. 08-54, Available at SSRN: https://ssrn.com/abstract=1288182

Taking Behavioralism Seriously: Some
Evidence of the Problem of Market
Manipulation

Analyze the following scenario and identify two distinct methods the company is using to influence consumer behavior. For each method, explain the underlying psychological principle that makes it effective.

Analysis of Digital Marketing Tactics

Critically evaluate the claim that modern digital marketing techniques, which leverage vast amounts of personal data to tailor advertisements and user experiences, fundamentally undermine consumer autonomy. In your response, contrast the perspective of a behavioral economist with that of a traditional economist who assumes rational consumer choice.

Critique of Corporate Influence on Consumer Choice

A travel booking website displays a message 'Only 2 rooms left at this price!' next to a hotel listing, accompanied by a pop-up stating '15 other people are looking at this hotel right now.' Which behavioral mechanism is this website primarily using to influence the consumer's decision-making process?

A software company presents three subscription options to its customers:
1. Basic Plan: $10/month (limited features)
2. Pro Plan: $25/month (all features)
3. Pro Plan + Cloud Storage: $26/month (all features plus 100GB cloud storage)

Explain the psychological strategy behind this pricing structure and identify which option the company likely intends for most customers to choose. Justify your reasoning.

Analysis of Pricing Strategy

The central argument in studies on market manipulation is that while corporations may present consumers with biased information, the ultimate purchasing decision remains a reflection of the consumer's pre-existing, stable preferences.

A company's digital marketing team is designing strategies to increase online sales. Match each proposed strategy with the primary behavioral principle it exploits to influence consumer decisions.

Imagine you are a policy advisor tasked with mitigating the negative effects of digital market manipulation on consumers. Based on the understanding that corporations can actively shape consumer preferences by exploiting cognitive biases, propose a specific, actionable policy or regulation. In your proposal, you must:
1. Identify a specific manipulative technique used in digital markets.
2. Explain the behavioral principle it exploits.
3. Detail how your proposed policy would counteract this manipulation.
4. Justify why your policy is a better approach than simply educating consumers.

Designing a Regulatory Framework for Digital Markets

Imagine you are a marketing consultant for a new online subscription service for eco-friendly products. Your client wants to maximize initial sign-ups. Design a user onboarding process that incorporates at least three distinct behavioral mechanisms to encourage users to subscribe to the premium annual plan instead of the basic monthly plan. For each mechanism, explain the psychological principle it leverages and justify why it could be considered manipulative rather than merely persuasive.

Designing a Digital Nudge Campaign

A company is launching a new subscription-based 'brain-training' mobile app targeted at college students. Outline a two-step digital strategy to convert a user from a free trial to a paid annual subscription. For each step, you must:
1. Describe a specific tactic you would implement within the app or in its marketing.
2. Identify the specific cognitive bias this tactic is designed to exploit.
3. Briefly explain the mechanism by which the tactic leverages the bias to influence the student's decision.

Designing a User Acquisition Strategy

A social media platform's algorithm consistently shows a user content that reinforces their existing beliefs. The platform then displays targeted advertisements for products and services that align with this curated content stream. Analyze this scenario from two distinct economic perspectives: first, from the viewpoint of a model that assumes consumers are rational actors with stable preferences, and second, from a behavioral perspective that acknowledges the potential for market manipulation by exploiting cognitive biases. Contrast the conclusions each perspective would likely draw regarding consumer autonomy and welfare.

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