Most importantly, markets are efficient only if participants have full and perfect information about the goods they are

1. Most importantly, markets are efficient only if participants have full and perfect information about the goods they are buying. • This is obviously not always the case, however; some products are simply too complex for anyone but an expert to understand them.

2. Gathering information is also time consuming and expensive, so many consumers may not have the resources to acquire the necessary information on their own.

3. Consumers & Information • In theory, of course, if consumers really wanted this information, then a market would be created for consumer information. • It is difficult, however, for such organizations to cover their costs. • Once costly information is released, it is easily leaked to others who do not pay.

4. Consumers & Information • Because people know they can become free riders, the number of people who pay for the information is too small to cover the costs of gathering it. • Second, consumers are unwilling to pay for information because they do not know what its value is until after they get it.

5. Consumers & Information • Then they already have it and don't need to pay for it. • When we buy information, we cannot know in advance what we are purchasing until we have it. • Markets alone, then, cannot provide consumers with the information they need.

6. Consumer as rational utility maximizer • Another criticism of the free market approach to consumer issues refers to the sixth characteristic of perfectly competitive free markets, that of the consumer is a "rational utility maximizer."

7. Consumer as rational utility maximizer • The consumers defined by the theory think ahead, consider, and watch every penny they spend, knowing how their choices will affect their preferences. This does not really characterize consumer choice.

8. Consumer as rational utility maximizer • Most consumer choices are based on probability estimates that we make concerning the chances that the products we buy will function as we expect. • Research shows, unfortunately, that we become inept and irrational when we make such choices.

9. Estimating probabilities • First, most of us are not good at estimating probabilities. • We typically underestimate risks and overestimate the probabilities of unlikely but memorable things. • Our probability judgments go astray for five reasons:

10. Probability Astray • We ignore prior probabilities when we get new information, even if the new information is irrelevant. • We emphasize "causation“, but underweight evidence that is relevant but not seen as "causal“.

11. We generalize based on small sample findings. • We believe in the non-existent "law of averages“. • We believe that we control purely chance events.

12. probability estimates • Second, as a number of researchers have shown, people are irrational and inconsistent when weighing choices based on probability estimates of future costs and payoffs.

13. probability estimates • Research shows that people inconsistently rank one payoff as being both better and worse than another. • Finally, markets often fail to have numerous buyers and sellers.

14. probability estimates • Since most consumer markets are monopolies or oligopolies, the sellers are able to extract abnormally high profits by ensuring that demand always exceeds supply.

15. Consumer Protection • As a whole, market forces by themselves are not able to deal with consumer concerns for safety, freedom from risk, and value. • Instead, consumers must be protected by Governmental action and the voluntary initiatives of businesses.

16. Consumer Protection • Of course, part of the responsibility for consumer injuries does rest on consumers. • People often use items that they have neither the skill nor experience to handle.

17. Consumer Protection • Injuries also occur because of flaws in design, materials, or manufacturing. • However, in these cases, it is the manufacturer's duty to minimize injuries. • Their expertise makes them most knowledgeable about the safest materials and methods of making their products.