Using Warnings to Extend the Boundaries of Consumer Sovereignty

Abstract

We make decisions every day for which we may not have full information. Not all such decisions lead to negative consequences, however. For example, scientists still know very little about why aspirin has its beneficial effects. However, the lack of our knowledge does not necessarily imply that our decisions are in error or that our freedom to make these decisions should be constrained. Almost invariably, we must make decisions with uncertain implications when we fail to have complete information, whether it be with respect to today's weather forecast or the chemical composition of the foods we eat, but this does not mean that these decisions are mistaken. Furthermore, acquiring information itself is costly, so that many of the choices we make will be made based on our subjective assessments of the risk. A substantial literature indicates that decisions made without certainty are in fact often more rational than first acquiring information because information acquisition is costly. While the potential rationales for government intervention are quite diverse and often compelling, it should also be emphasized that there are dangers to intervention. Consumer choice plays a constructive role in circumventing these dangers by enabling consumers to match their product and activity choices with their own preferences.