Our economic and legal systems are based on the idea of consumer sovereignty. According to this view, in market economies, what is produced emerges from the tastes and needs of consumers. The preferences of consumers drive the demand for goods. This demand signals (through prices) to producers where they should allocate resources and effort to earn profits.

There is definitely something to say in favour of this view, and Hayek was certainly not wrong in pointing out that the ability of market economies to achieve the satisfaction of consumers in a decentralized way could never be rivalled by central planning. The course of history suggests he was right in that regard.

However, the notion of consumer sovereignty is certainly not a fully accurate characterization of how market economies work and how producers respond to consumers’ preferences. In a 1955 paper, Robert Strotz highlighted a major flaw in this concept. A consumer's preferences today may not be the same tomorrow. Hence, when a consumer is making decisions involving a stream of investments or consumptions over the future, he/she may end up regretting in the future these present decisions. It is therefore not clear that it makes sense to state that the customer is making the right decisions for himself/herself. Behavioural economics later extended this concern to present decisions. Consumer choices are influenced by a range of psychological biases and cognitive limitations, which makes it hard if not sometimes preposterous to claim that customers are sovereign. While these limitations may be small or have benign consequences in many situations (e.g., in small and frequent consumption choices), this may not be the case when making infrequent and unusual economic purchases. These limitations may also have a major impact when making decisions about the purchase of complex products.

Unfortunately, the idea of consumer sovereignty has a cost. With power comes responsibility, and if consumers are deemed to be making the right choices for themselves, they are also considered responsible when their choices of purchases end up having negative consequences. De facto, in many markets, this illusion has legitimized situations of strong asymmetry between a consumer with psychological limitations and firms equipped with product designers, marketers and lawyers. These experts aim to maximize the firms’ profit by providing products that are most likely to induce consumers to buy them and terms and conditions most suited to protecting the firm in case of consumer dissatisfaction. The maximization of firms’ profits is typically not related to the maximization of consumer welfare. Indeed, products that, for instance, appeal to customers’ present temptations often lead to undesired consequences for this customer later on.

With the progress of behavioural economics knowledge in policy circles, the legal fiction justifying this unchecked asymmetry between firms and customers is being increasingly questioned. Regulations to prevent abuse in the design and marketing of products is growing. That process is not simple. As stressed right away by Strotz in his 1955 article, recognizing that customers may not be the best judges of what is right for them does not mean that the government would know better. What is required, therefore, is to design regulations that help customers make better decisions themselves and protect them from the asymmetry in expertise with firms.

In that perspective, what information that should be given to customers and how this information should be provided are major areas of investigation. The three articles collated in this special section review the challenges and many proposed solutions regarding this question. In the first article, I give an overview of the problems created by existing disclosure practices when met with consumers with their human limitations. I review the different types of evolutions that are being discussed (and sometimes have already been implemented) in order to resolve or at least mitigate these problems. In the second article, Amelia Fletcher discusses the role of disclosure in fostering consumer engagement (e.g., consumer search and switching), which helps keep a market competitive for consumers. Finally, the third paper by Oren Bar-Gill discuss the important issue of smart disclosure, which aims to tailor the disclosure of information using the insights from the behavioural sciences about customers’ limited ability to receive and understand information. The article presents the promises but also the challenges of such an approach.

The role of behavioural insights in informing future regulations about information disclosure is now set to grow over time. The solutions to the present problems are not simple, but the old ways will most likely be progressively discredited as considerations about consumer welfare become increasingly informed by our knowledge of consumers’ decision-making limitations. The articles in this special section aim to contribute to this important debate and to help pave the way for future solutions.