Are Consumers Rational in Their Dispute Resolution? An Analysis of Collective Action for Consumer Detriments

Abstract

This paper presents the results of a longitudinal survey study (N=11,984) that examines how collective (group) action lawsuit, in particular opt-in or opt-out, affects decision-making by individuals if they participate in consumer detriment cases. This dataset was made up of Japanese in their 20s and 30s from all prefectures. When consumers suffer consumer detriments, their appropriate actions through courts or other alternative dispute resolution system contribute to eliminate unconscionable business practices and to correct market failure. However, even if consumers have this important role, it is wonder whether these consumer victims are always rational to take action. Behavioral economics reveals that default effect is one of behavioral bias and a review in the UK suggests that consumer collective action may have default effect through victims’ decision-making by choosing “opt-in” or “opt-out” basis in a country.
The results here show existing default effect because rates to participate in hypothetical consumer cases in opt-out scheme are statistically higher than in opt-in scheme. Logit analysis with other factors also supports this conclusion. This suggests that policy makers should take into account of individual behavioral bias and opt-out scheme is better for consumer collective action to obtain enough participation rates.