Dark nudges in gambling

‘Nudge’ has come into common usage in behavioral science, the intersection of psychology and economics, for situations where a ‘choice architect’ aligns a system with consumers’ best long - term interests (Thaler & Sunstein, 2008). A cafeteria designer might ‘nudge’ her customers by placing the salad bar centrally, while relegating unhealthier foods to a corner. In this editorial I argue that, in gambling, nudging works differently. Gambling’s ‘dark nudges’ are designed to exploit gamblers’ biases, as economic rationality on the part of gambling firms predicts. Gambling’s dark nudges reveal the contradictions of industry - led responsible gambling initiatives, and show how stronger regulation is required to reverse gambling’s spiralling public health costs (Korn & Shaffer, 1999; Livingstone & Adams, 2011; Markham & Young, 2015; Orford, 2005; Orford, 2010

Reference Distorted Prices

I show that when consumers (mis)perceive prices relative to reference prices, budgets turn out to be soft, prices tend to be lower and the average quality of goods sold decreases. These observations provide explanations for decentralized purchase decisions, for people being happy with a purchase even when they have paid their evaluation, and for why trade might affect high quality local firms 'unfairly'

Deceptive Advertising with Rational Buyers

We study a Bertrand game where two sellers supplying products of different and unverifiable qualities can outwit potential clients through their (costly) deceptive advertising. We characterize a class of pooling equilibria where sellers post the same price regardless of their quality and low quality ones deceive buyers. Although in these equilibria low quality goods are purchased with positive probability, the buyer (expected) utility can be higher than in a fully separating equilibrium. It is also argued that low quality sellers invest more in deceptive advertising the better is their reputation vis-à-vis potential clients — i.e., firms that are better trusted by customers, have greater incentives to invest in deceptive advertising when they produce a low quality product. Finally, we characterize the optimal monitoring effort exerted by a regulatory agency who seeks to identify and punish deceptive practices. When the objective of this agency is to maximize consumer surplus, its monitoring effort is larger than under social welfare maximization