Open doors, trap doors, and the law

Law and Contemporary Problems

Volumn 74, Issue 2, 2011, Pages 63-60

  Becher, Shmuel I ^a   Zarsky, Tal Z ^b  

^a The College of Management Academic Studies School of Law   (Israel)

^b UNIVERSITY OF HAIFA   (Israel)

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EID: 79958151418     PISSN: 00239186     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (159)

1. In recent years, interest has grown in the way people make decisions, and its influence, among other things, on well-being and happiness.
2. See, e.g., HEURISTICS AND BIASES: THE PSYCHOLOGY OF INTUITIVE. JUDGMENT (Thomas Gilovich, Dale Griffin & Daniel Kahneman eds., 2002)
3. THE LAW AND ECONOMICS OF IRRATIONAL BEHAVIOR (Francesco Parisi & Vernon L. Smith eds., 2005).
4. A few popular books, based on extensive academic research, address issues raised in this article, though not in detail, nor from a legal perspective.
5. See DANIEL GILBERT, STUMBLING ON HAPPINESS (2006).
6. BARRY SCHWARTZ, THE PARADOX OF CHOICE: WHY MORE IS LESS (2004).
7. Lenient return policies and similar practices are part of a broader movement of generating trust and confidence in mass retail. These latter forms of commerce were an important shift in the United States, away from small, local shops (that at times discriminated among consumers).
8. See JOSEPH TUROW, NICHE ENVY: MARKETING DISCRIMINATION IN THE DIGITAL AGE 31 (2006).
9. Similarly, a borrower's ability, after commencing a financial loan (such as a home equity loan), to refinance, pay, or substantially change its terms without penalty might also be referred to as an "open door." Such rights are popular in U.S. loan markets, and are even mandated in several states.
10. See Peter J. Wallison, Cause and Effect: Government Policies and the Financial Crisis, FIN. SERVS. OUTLOOK (Am. Enter. Inst. for Pub. Policy Research), Nov. 2008, at 6-7.
11. The issue of whether refinancing resembles an open door or the formulation of a new agreement is beyond the scope of this article.
12. See, e.g., Jeff Sovern, Toward a New Model of Consumer Protection: The Problem of Inflated Transaction Costs, 47 WM. & MARY L. REV. 1635, 1675 n.141 (2006) (providing various sources that support this assertion).
13. A recent working paper explains that in many instances, recognizing open door rights leads to efficient outcomes.
14. See generally Omri Ben-Shahar & Eric Posner, The Right to Withdraw in Contract Law (Univ. of Chicago Law & Econ., Olin Working Paper No. 514, 2010), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1569753.
15. A fourth response-the law barring voluntary open door provisions and practices-is also possible. However, in view of the many advantages of such provisions as well as other policy considerations (such as avoiding paternalism), such a response seems extremely unlikely.
16. Insofar as our analysis draws clear distinctions among these different aspects, it is mainly for reasons of methodology and clarity. We are well aware that these benefits at times overlap and interact.
17. Human participants are expected to behave in ways that "(1) maximize their utility (2) from a stable set of preferences and (3) accumulate an optimal amount of information and other inputs in a variety of markets." GARY S. BECKER, THE ECONOMIC APPROACH TO HUMAN BEHAVIOR 14 (1976) (numerals inserted).
18. This strategy is discussed in many different decision-making contexts. See, e.g., James R. Bettman, Mary Frances Luce & John W. Payne, Constructive Consumer Choice Processes, 25 J. CONSUMER RES. 187 (1998) (applying this strategy in the context of consumers). According to this strategy, a consumer assigns a weight to every attribute she wishes to compare. Important features receive relatively high weight while less significant attributes are given less weight. The consumer presumably scores each product characteristic. Finally, the consumer multiplies the weight and the given score, then adds all factors for one total score. This score will represent the product's overall quality from the consumer's viewpoint. A consumer who seeks to maximize utility chooses the product that received the highest total score.
19. Gerd Gigerenzer, Why Heuristics Work, 3 PERSP. ON PSYCHOL. SCI. 20, 20 (2008) (naming logic, probability, and heuristics as three modes in which humans make decisions).
20. Herbert A. Simon, Rational Choice and the Structure of the Environment, 63 PSYCHOL. REV. 129, 129 (1956) (noting that when making decisions, "organisms adapt well enough to 'satisfice'; they do not, in general, 'optimize'").
21. Simon also coined the term "bounded rationality" to refer to human's computational limitations and definite ability. HERBERT A. SIMON, MODELS OF MAN: SOCIAL AND RATIONAL 198 (1957).
22. For an illuminating discussion in the context of consumer decision-making and information overload, see David M. Grether, Alan Schwartz & Louis L. Wilde, The Irrelevance of Information Overload: An Analysis of Search and Disclosure, 59 S. CAL. L. REV. 277 (1986).
23. Melvin Aron Eisenberg, Comment, Text Anxiety, 59 S. CAL. L. REV. 305 (1986).
24. See, e.g., Milton Friedman, The Methodology of Positive Economics, in ESSAYS IN POSITIVE ECONOMICS 3 (1953).
25. Indeed, consumers themselves are repeat players in the sense that they engage in repeated transactions, at times even with the same vendor. However, as a class they lack sophistication, resources, and experience for the following reasons: First, even though consumers engage in many transactions, vendors engage in far more. Second, vendors have the ability, motivation, and knowledge to use information that transactions generate to learn a great deal about the transaction and the transacting party-something most consumers are unable to do. Third, vendors are able to structure the transaction based on the knowledge and insights they gather-architecturally, legally, and financially.
26. Open doors can assist consumers in learning how products fit in their home or with other products.
27. This is often the case because the purchaser has the actual possession.
28. (referring, for example, to musical equipment).
29. Interestingly, some legislatures outside the United States provide consumers with a mandatory right to cancel a long-distance selling transaction.
30. See Georg Borges & Bernd Irlenbusch, Fairness Crowded out by Law: An Experimental Study on Withdrawal Rights, 163 J. INST. & THEORETICAL ECON. 84, 85-86 (2007) (comparing general EU rules on consumer withdrawal rights with policies of members states).
31. For a debate on consumers' ability to learn from experience and minimize risk, see Oren Bar-Gill, The Behavioral Economics of Consumer Contracts, 92 MINN. L. REV. 749 (2008).
32. Richard A. Epstein, The Neoclassical Economics of Consumer Contracts, 92 MINN. L. REV. 803 (2008).
33. For a discussion of how return policies can minimize uncertainty in these transactions.
34. While the risk of shirking parties might seem minimal in view of the clear course of legal action that harmed parties may take, things are far from being so simple. For one-shot, unsophisticated players, access to the legal system is costly and limited. Thus, in many cases (especially given the limited benefits of such claims), consumers will refrain from initiating legal action.
35. Note, however, that open door mechanisms merely protect consumers' restitution interest. A breach might generate greater damages and thus call for the protection of a consumers' reliance and expectation interest. To meet this objective, consumers would still have to consider litigation.
36. The specific benefits mentioned here can be also achieved through other legal means, such as consumer protection laws, class actions, et cetera.
37. See generally Shmuel I. Becher & Tal Z. Zarsky, Consumers' Right of Withdrawal: A Well-Reasoned Right or a Pyrrhic Victory?, 32 TEL AVIV U. L. REV. 127 (2010) (in Hebrew).
38. This intuition has been examined and challenged in several psychological experiments.
39. This ability has the most relevance in the context of long-term contracts, especially for services.
40. Jason Scott Johnston, The Return of Bargain: An Economic Theory of How Standard-Form Contracts Enable Cooperative Negotiation Between Businesses and Consumers, 104 MICH. L. REV. 857, 858 (2006).
41. See generally Shmuel I. Becher & Tal Z. Zarsky, E-Contract Doctrine 2.0: Standard Form Contracting in the Age of Online User Participation, 14 MICH. TELECOMM. & TECH. L. REV. 303 (2008).
42. Some commentators argue that such strategies are even efficient and preferable in certain circumstances.
43. See Lucian A. Bebchuk & Richard A. Posner, One-Sided Contracts in Competitive Consumer Markets, 104 MICH. L. REV. 827, 827-28 (2006) ("A seller concerned about its reputation can be expected to treat consumers better than is required by the letter of the contract.").
44. A mirroring problem is possible as well: firms might contractually provide open doors that go beyond those that the sales representative conveys to consumers.
45. For a discussion of instances when this form of conduct is purposeful and strategic (as a measure to generate price discrimination among consumers), see David Gilo & Ariel Porat, Viewing Unconscionability Through a Market Lens, 52 WM. & MARY L. REV. 133, 155 (2010).
46. Gilo and Porat refer to such practices as relying upon "Selective Beneficial Terms." Their example is of a subscription to an Internet Service Provider (ISP), which provides, in fine print only, for the right to cancel within a certain period of time. This right is not evident to consumers who do not read the fine print. We refrain from developing this point for the reasons set forth in the text. Also, we believe that novel ways for distributing consumer information will prove helpful in closing this information gap. For an analysis of this dynamic.
47. For some reviews of this legal framework, see JOHN A. SPANOGLE, RALPH J. ROHNER, DEE PRIDGEN & JEFF SOVERN, CONSUMER LAW: CASES AND MATERIALS 252-53 (3d ed. 2007).
48. Colin Camerer, Samuel Issacharoff, George Loewenstein, Ted O'Donoghue & Matthew Rabin, Regulation for Conservatives: Behavioral Economics and the Case of "Asymmetric Paternalism," 151 U. PA. L. REV. 1211, 1238 (2003).
49. See also IAIN RAMSAY, CONSUMER LAW AND POLICY 141, 330-46, 555 (2d ed. 2007) (United Kingdom).
50. For a general background and discussion.
51. See 16 C.F.R. § 429.1 (1995) (mandating a cooling-off period in door-to-door transactions).
52. According to one study, every state-and the District of Columbia-has enacted a cooling-off statute.
53. See DEE PRIDGEN & RICHARD M. ALDERMAN, CONSUMER CREDIT AND THE LAW app. 14A (2009).
54. See, e.g., Arizona v. Direct Sellers Ass'n of Ariz., 494 P. 2d 361 (1972) (upholding a statute regulating door-to-door salesmen, citing a Congressional report that noted "a disproportionate number of door-to-door sales involve misleading or high pressure sales").
55. Some loan and financing regulations allow borrowers to refinance or terminate their loan with minimum costs, at any time. There is heated debate as to how these policies impacted the recent economic crisis.
56. The law also assures that firms provide consumers with portability, that is, the ability to switch easily to a different provider. The Health Insurance Portability and Accountability Act of 1996, Pub L. No. 104-191, 110 Stat. 1936 (HIPAA) ensures that medical insurance providers allow the insured to switch jobs by requiring firms to insure against preexisting conditions. The Federal Communication Commission (FCC) mandates local phone number portability, which promotes competition in telecommunications markets and limits incumbents' ability to lock up their existing customer base.
57. See, e.g., N.Y. GEN. BUS. LAW § 198-b (McKinney 2004). One might argue that these rules counter "aggressive" tactics of used car salesmen as well.
58. See 15 U.S.C. § 1635 (1995) (Truth in Lending Act (15 U.S.C. §§ 1601-1667(f)) (provision mandating a three-day right to rescind home equity loans)); Home Equity Loan Consumer Protection Act of 1988, Pub. L. No. 100-709, 102 Stat. 4725 (amending provisions of the Truth in Lending Act).
59. See Pamaria Rekaiti & Roger Van den Bergh, Cooling-off Periods in the Consumer Laws of the EC Member States: A Comparative Law and Economics Approach, 23 J. CONSUMER POL'Y 371 (2000).
60. Australia and New Zealand are two examples. For a report addressing this issue in the Asia- Pacific Economic Cooperation (APEC) region, see Elec. Commerce Steering Grp., Int'l, Approaches to Consumer Protection Within the APEC Region, NORTH AM. CONSUMER PROJECT ON ELEC. COMMERCE (Oct. 2002), http://www.nacpec.org/docs/Approaches_to_consumer_protection.pdf.
61. One of the rationales for extending such protection to the Internet in the EU was to promote e-commerce. Some argue that applying this rationale to the U.S. legal and business setting on its own seems unfitting.
62. For a challenge to the basic premise of this rationale.
63. For a recent call to extend the current legal setting and add additional default "open door" rules.
64. See, e.g., Cass R. Sunstein & Richard H. Thaler, Libertarian Paternalism Is Not an Oxymoron, 70 U. CHI. L. REV. 1159, 1162 (2003) (introducing the concept of libertarian paternalism, associating consumer cooling-off periods with it, and explaining that libertarian paternalism "is a relatively weak and nonintrusive type of paternalism, because choices are not blocked or fenced off").
65. See, e.g., Ian Ayres & Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 99 YALE L.J. 87 (1989).
66. See also Russell Korobkin, The Status Quo Bias and Contract Default Rules, 83 CORNELL L. REV. 608 (1998).
67. In the financial context, policy, at times, actively facilitates open doors. For instance, the federal government has put in place an elaborate system that enables banks to offer fixed-rate or longterm loans which allow refinancing at any time. In other words, these loans allow the borrower to exit one loan and opt for another. The government does so at considerable expense. The rise and fall of Fannie Mae and Freddie Mac are possibly related to these issues.
68. N.Y. GEN. BUS. LAW § 218-a (McKinney 2009); Consumer Sales Practices Act, OHIO REV. CODE ANN. § 1345.03 (LexisNexis 2009); CAL. CIV. CODE § 1723 (Deering 2009).
69. ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996).
70. For a recent analysis revisiting this case, see Randal C. Picker, Easterbrook on Copyright, 77 U. CHI. L. REV. 1165 (2010).
71. Mark Lemley, Terms of Use, 91 MINN. L. REV. 459, 469 (2006).
72. AM. LAW INST., PRINCIPLES OF THE LAW OF SOFTWARE CONTRACTS § 2.02 (2010).
73. For a recent discussion, see Hannibal B. Travis, The Principles of the Law of Software Contracts: At Odds With Copyright, Consumers, and European Law?, 84 TUL. L. REV. 1557 (2010).
74. Examples include, inter alia, Costco, Macy's, Walmart, and Target. For a sample of these lenient policies.
75. Having additional (or "more") legal rights as opposed to less is, at times, detrimental to society at large.
76. See generally Daphna Lewinsohn-Zamir, More Is Not Always Better Than Less: An Exploration in Property Law, 92 MINN. L. REV. 634 (2008).
77. Lewinsohn-Zamir shows how many existing property-related norms strangely limit the autonomy and rights of various players-supposedly undermining efficiency and fairness. However, her analysis shows that, in light of behavioral insights and cognitive failings, these rules are, in many cases, optimal. Our premise differs from Lewinsohn-Zamir's on a central point: rather than explaining the rationale behind existing law and justifying it based on a behavioral analysis, we use behavioral analysis to demonstrate that current law ought to be reexamined.
78. For example, regulators intervened in transactions which included open doors that were apparently misleading or fraudulent. In some cases, signs indicating "Free Trial Period!" and "Money Back-GUARANTEED!" were, indeed, too good to be true. Some involved "bait and switch" schemes, where the product provided was not the one advertised. Others misled consumers as to the difficulty of rescinding the initial transaction. The Federal Trade Commission has taken steps to regulate "negative option plans" and "free trial offers" involving "book of the month clubs" and other such settings.
79. Regulators moved to assure proper disclosure prior to the transaction regarding the nature of the open door option, as well as the steps required to rescind it.
80. (indicating that firms at times "exploit natural barriers" as a measure to limit the consumers' ability to rescind contracts for strategic reasons). The use of such implicit barriers, even for achieving this fair outcome, is troubling.
81. A classic economic assertion in this context is that, where strong competition exists, it is enough that some consumers (a substantial minority) shop for contract terms in order to discipline sellers and generate a fair and efficient market.
82. See, e.g., Alan Schwartz & Louis L. Wilde, Intervening in Markets on the Basis of Imperfect Information: A Legal and Economic Analysis, 127 U. PA. L. REV. 630 (1979).
83. This thesis has been questioned and criticized from various perspectives. See, e.g., R. Ted Cruz & Jeffery J. Hinck, Not My Brother's Keeper: The Inability of an Informed Minority to Correct for Imperfect Information, 47 HASTINGS L.J. 635 (1996).
84. See, e.g., Yannis Bakos, Florencia Marotta-Wurgler & David R. Trossen, Does Anyone Read the Fine Print? Testing a Law and Economics Approach to Standard Form Contracts (N.Y.U. Law & Econ. Research Paper No. 09-40, 2009), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1443256.
85. Shmuel I. Becher & Esther Unger-Aviram, The Law of Standard Form Contracts: Misguided Intuitions and Suggestions for Reconstruction, 8 DEPAUL BUS. & COM. L.J. 199 (2010).
86. Debra Pogrund Stark & Jessica M. Choplin, A License to Deceive: Enforcing Contractual Myths Despite Consumer Psychological Realities, 5 N.Y.U. J.L. & BUS. 617 (2009).
87. See, e.g., Shmuel I. Becher, Behavioral Science and Consumer Standard Form Contracts, 68 LA. L. REV. 118, 170-177 (2007).
88. Russell Korobkin, Bounded Rationality, Standard Form Contracts, and Unconscionability, 70 U. CHI. L. REV. 1203, 1206 (2003).
89. This flow of information is generated by (usually experienced) consumers in various ways. For a detailed analysis.
90. The distinction between these categories is not clear-cut, and a term that is non-salient at the time of the transaction might become salient at a later time.
91. See, e.g., Shmuel I. Becher, A "Fair Contracts" Approval Mechanism: Reconciling Consumer Contracts and Conventional Contract Law, 42 U. MICH. J.L. REFORM 747, 749 n.2-4 (2009).
92. There are different perspectives and findings on this issue. For empirical data regarding the low rate of actual returns (in this study, sixteen percent).
93. see J. Andrew Petersen & V. Kumar, Can Product Returns Make You Money?, 51 MIT SLOAN MGMT. REV. No. 3, 85 (2010), available at http://sloanreview.mit.edu/the-magazine/articles/2010/spring/51316/can-product-returns-make-you-money/.
94. For somewhat different findings in the electronics and computer realm, see Yeon-Koo Che, Customer Return Policies for Experience Goods, 44 J. INDUS. ECON. 17, 17 (1996) ("As many as 20% of personal computers sold to home buyers are known to be returned....").
95. See, e.g., Erika Morphy, Survey: Customers Want Flexible Return Policies (Jan. 8, 2007), available at http://www.crmbuyer.com/story/55031.html?wlc=1286145522 (seventy-five percent find a clear and simple return policy to be a highly important attribute).
96. ("Return policy is not the type of fine print term that goes under the radar, hidden from consumers' plain sight.").
97. ("Buyers seek information about the sellers' return policies, because most buyers anticipate returns as a non-trivial contingency.").
98. For an interesting illustration, see the General Motors (GM) TV ad, available at http://www.youtube.com/watch?v=jpqr4_ONew0 (featuring GM CEO Ed Whittaker conspicuously promoting the "60-Day-Money-Back guarantee").
99. This might lead to efficient outcomes by allowing firms to discriminate between diligent and non-diligent consumers.
100. (providing insightful, though esoteric and rare examples).
101. The phenomenon was first documented by Richard Thaler some thirty years ago.
102. See Richard Thaler, Toward a Positive Theory of Consumer Choice, 1 J. ECON. BEHAV. & ORG. 39, 44 (1980).
103. Jack L. Knetsch, The Endowment Effect and Evidence of Nonreversible Indifference Curves, 79 AM. ECON. REV. 1277, 1278 (1989).
104. But see Charles R. Plott & Kathryn Zeiler, The Willingness to Pay-Willingness to Accept Gap: the "Endowment Effect," Subject Misconceptions, and Experimental Procedures for Eliciting Valuations, 95 AM. ECON. REV. 530 (2005) (challenging the robustness of the endowment effect).
105. See, e.g., Ziv Carmon & Dan Ariely, Focusing on the Forgone: Why Value Can Appear So Different to Buyers and Sellers, 27 J. CONSUMER RES. 360 (2000).
106. Stacy L. Wood, Remote Purchase Environments: The Influence of Return Policy Leniency on Two-Stage Decision Processes, 38 J. MARKETING RES. 157, 160 (2001).
107. A possible earlier point is when a bidder in an online auction has remained the highest bidder for an extended period of time.
108. See DAN ARIELY, PREDICTABLY IRRATIONAL 135-36 (2008) (stating that, in these instances, the endowment effect is triggered by "virtual ownership").
109. For example, the endowment effect can distort litigants' willingness to settle a case. See generally Ward Farnsworth, Do Parties To Nuisance Cases Bargain After Judgment? A Glimpse Inside the Cathedral, 66 U. CHI. L. REV. 373 (1999).
110. See generally George Loewenstein & Daniel Adler, A Bias in the Prediction of Tastes, 105 ECON. J. 929 (1995) (study indicating individuals' inability to predict the endowment effect).
111. See also sources cited infra note 73.
112. For applying the concept of the endowment effect to contract law, see, for example, Russell Korobkin, The Endowment Effect and Legal Analysis, 97 NW. U. L. REV. 1227, 1232 (2003).
113. Whether consumers can learn over time about these effects and correct their decision-making process is a thorny question. As explained below, we are skeptical whether this is indeed possible in this context.
114. See also Jon D. Hanson & Douglas A. Kysar, Taking Behavioralism Seriously: The Problem of Market Manipulation, 74 N.Y.U. L. REV. 630, 734 (1999) ("Significantly, it has been demonstrated that people are unable to predict the operation of the endowment effect.... [C]onsumers will fail to perceive the risks of taking a product home-they will, in effect, really perceive it as a 'no risk' offer.").
115. Gerald E. Smith & Thomas T. Nagle, Frames of Reference and Buyers' Perceptions of Price and Value, 38 CAL. MGMT. REV. 98, 101 (1995). It is generally agreed that sellers are not subject to the endowment effect with regard to their merchandise.
116. Articulating the exact influence on consumers is yet a challenge due to lack of empirical data.
117. ("Behavioral investigation of the issue is nonexistent.").
118. For a discussion of these terms, coined by Harry Frankfurt, in the legal context, see generally Cass R. Sunstein, Legal Interferences With Private Preferences, 53 U. CHI. L. REV. 1129 (1986).
119. See also Eyal Zamir, The Efficiency of Paternalism, 84 VA. L. REV. 229, 243 (1998).
120. The question as to whether the law must engage in active debiasing when cognitive failings lead to errors of judgment is quite complex and calls for legal analysis beyond the scope of this paper. On this issue, see Avishalom Tor, Whether and When To Debias Through Law, LAW AND BUSINESS (forthcoming) (in Hebrew, on file with authors), and sources quoted therein.
121. This form of manipulation presents a much easier case for government intervention.
122. Yet, this intervention does not pertain to all instances of open doors, as it calls for some level of a sellers' intent to manipulate consumers.
123. As opposed to instances in which such misunderstanding results from the firm's withholding relevant information about this issue at the time of the transaction, providing misleading data, or providing full data in an incomprehensible manner.
124. See generally Lynn A. Baker & Robert E. Emery, When Every Relationship Is Above Average: Perceptions and Expectations of Divorce At the Time of Marriage, 17 LAW & HUM. BEHAV. 439 (1993).
125. For a discussion of over-optimism in the context of consumer borrowing, see, for example, Oren Bar-Gill, Seduction By Plastic, 98 NW. U. L. REV. 1373 (2004).
126. Richard M. Hynes, Overoptimism and Overborrowing, 2004 BYU L. REV. 127 (2004).
127. One might ask why firms (and their executives) are not also overoptimistic in formulating these return policies. The classic response would be that the firms can easily de-bias such a tendency, relying on extensive experience, empirical data, and expert advice.
128. For an interesting discussion of the status quo bias, people's preference toward inaction, and the omission bias, see generally Ilana Ritov & Jonathan Baron, Status-Quo and Omission Bias, 5 J. RISK & UNCERTAINTY 49 (1992).
129. Current research suggests mechanisms that may at times overcome this tendency. See, e.g., Richard H. Thaler & Shlomo Benartzi, Save More Tomorrow™: Using Behavioral Economics to Increase Employee Savings, 112 J. POL. ECON. S164 (2004).
130. We further assume that it is unlikely that consumers will adopt a "correction mechanism" as a result of their past experience. For a different opinion on consumers' ability to learn from experience.
131. As well-being and happiness are vague and elusive notions, one might wonder whether it is the role of regulators to directly advance individuals' well-being and happiness, as opposed to the customary objectives of maximizing utility. We submit that there is no reason to limit legal analysis of utility to the narrow meaning of monetary gain. Moreover, as the economic analysis of open doors is closely aligned with the psychological one, we present the latter as mere corroborative evidence of our central point concerning the hidden problems of open doors.
132. Although we are not aware of empirical findings on consumers' perception regarding this point, this understanding can be inferred from Daniel Gilbert's lecture. Daniel Gilbert, Address on Happiness (Feb. 2004), available at http://www.ted.com/talks/dan_gilbert_asks_why_are_we_happy.html.
133. Daniel T. Gilbert & Jane E.J. Ebert, Decision and Revisions: The Affective Forecasting of Changeable Outcomes, 82 J. PERSONALITY & SOC. PSYCHOL. 503, 509-10 (2002).
134. For an explanation of the costs in terms of depreciation of the product.
135. For a broader description of other costs and expenses.
136. This can be done by employing restacking fees and fines. Firms usually refrain from setting fees so high that they will clearly impede the perception of the open door. Some scholars note that in specific instances, fees are appropriate.
137. Furthermore, the analysis calls for an extensive set of assumptions, which are not supported by empirical findings. For instance, we must assume that, not only is the open door option salient in the eyes of the ex post party, but the incremental rise in the overall costs of the transaction is salient as well-a questionable notion which would be very difficult to prove empirically.
138. This point is made with caution. At times, cognitive effects that seem to be pointing in opposite directions, thus offsetting each other, rely on very different cognitive processes.
139. For a critical discussion of the analysis of countering heuristics, see Avishalom Tor, The Methodology of the Behavioral Approach to Law, 4 HAIFA L. REV. 237, 275 (2008).
140. In terms of the limited sums firms can overcharge for such options.
141. As mentioned, it is easier to justify intervention in instances where the consumers' preferences might have been manipulated intentionally, as opposed to regulation countering cognitive failure (such regulation might raise the specter of paternalism).
142. In addition, competition probably cannot resolve this issue because firms are aware of the cognitive failures at play and they all have an incentive to exploit them. Moreover, firms might be reluctant to educate consumers because once consumers are educated, other firms will follow and switch their policies. This will render the initial educational efforts worthless.
143. The second-order preference in this context might be, inter alia, aesthetics, frugality, free will, and freedom from manipulations.
144. (referring to Barbara Kahn, William L. Moore & Rashi Glazer, Experiments in Constrained Choice, 14 J. CONSUMER RES. 96 (1987)).
145. Once again, it is assumed that the existence of the open door option is salient, at least as regards to taking into account its existence (and not necessarily its price and terms).
146. ("Manufacturers will respond to market incentives by manipulating consumer perceptions in whatever manner maximizes profits.").
147. Once again, the vigilant reader might wonder whether the cognitive failures relied on here do not cancel out or mitigate each other. On one hand, individuals do not grasp the need for exercising the open door option (which might lead to underestimating such an occurrence and the value of this contractual right). On the other hand, they overestimate its value. We do not find these elements aligned so we do not believe that they cancel each other out. True, the benefits of open doors might be discounted at T0. Yet, the benefits that are recognized lead to the splitting of the decision-making process, and pushing part of it into the future-where cognitive fallacies come alive. Additional research is still required to resolve this point.
148. Hopefully, future work will establish whether applying mandatory or default open doors can impact the problem of deliberate manipulation
149. Cf. Gregory Mitchell, Libertarian Paternalism Is an Oxymoron, 99 NW. U. L. REV. 1245 (2005) (opining that the solutions and suggestions associated with libertarian paternalism will often improve the welfare of irrational persons at the expense of the rational ones).
150. As explained above, in many cases, at least some of the costs are rolled over to the other party. Yet it is not necessarily known or salient to the average consumer at the time of contract formation. In addition, in competitive markets, a consumer's intuition that at least some of the costs will be borne by the seller is mostly correct.
151. This is aside from the fact that costs are, in part, borne by the buyers from the very beginning.
152. One might indeed argue that the analysis assumes that the public is aware of the mandatory element in the open door policy. Whether this is true or not is for empirical testing to decide. However, this issue could be resolved by increasing education on existing and future mandatory open doors to limit this problem. It could also be resolved by forbidding vendors to present open doors as voluntary when they are mandatory.
153. This is clearly an issue that requires additional research. Additionally, a mandatory regime will prevent consumers from learning from experience and mistakes.
154. (hypothesizing that "a statutory entitlement might weaken the adoption of fairness considerations in the decision-making process," and that "a shift from a voluntarily granted withdrawal right to a statutory one indeed seems to... encourage[] [consumers] to seek their own benefit [and exercise their withdrawal right]").
155. (noting mandatory cooling-off period in consumer transactions in Israel).
156. (noting that "cooling-off periods have been widely adopted in Europe for a wide variety of consumer transactions").
157. Indeed, consumer markets are filled with aggressive, suggestive, and manipulative marketing techniques. Merely having a handsome model promote a product constitutes a manipulation. "Two for the price of one!" is another marketing scheme that abuses cognitive failings. In these (and other) cases, consumers are left to their own devices, and must learn on their own (at times with the help of peers, elders, or market forces) how to interpret the surfeit of information that markets provide.
158. One example is the market for home electronic appliances.
159. Open doors enable some forms of theft.