A little while back I wrote a post arguing that the existence of abusive terms in credit card contracts (such as huge jumps in interest rates for being one day late with a payment) do not satisfy the conditions for standard economic models of asymmetric information between rational agents, but rather are trickery, pure and simple. If this is right, then the standard remedy of mandating the provision of more information to the less-informed party, but not otherwise interfering in the market (the idea being that any voluntary agreement must make both parties better off, no matter how strange or one-sided the terms may appear, so any interference in contracts beyond providing information will reduce welfare), is not the right one. There is no decent argument that those terms would appear in any contract where both parties knew what they were doing, so if you see terms like that, the appropriate conclusion is that someone has been screwed, not that Goddess of Capitalism, in her infinite-but-inscrutable wisdom, has uncovered the only terms that, strange as they may seem to mere mortals, make a mutually beneficial contract possible. The goal is to get rid of those terms, and the most direct way to do that is simply to prohibit them. There are some good reasons to be reluctant to have the government go around prohibiting things, so mandatory disclosure might still be a good policy (though the Federal Reserve has investigated this and concluded that it isn't), but the goal would be to use the disclosures to eliminate the abusive terms. There is no justification for the standard economist's agnosticism about whether the terms are good or not: they're bad and the only question is how best to get rid of them.

Robin Hanson left some comments to that post, in which he made the point that since people voluntarily choose these terms, they must like them and so prohibiting them would have to mean protecting people against their will. I answered that while I'm enough of a paternalist to be willing, under some circumstances, to impose limited protections on people even if those people would oppose them, that I didn't think that was an issue here, as I would guess (though I have no proof), that the Federal Reserve's recent decision to ban certain credit card practices was probably very popular, even (especially?) among the people who are harmed by those practices. Robin's reply, as I understand it, is that this may be true, but since people can't simultaneously want to accept credit cards with those terms and at the same time favor banning those terms, it must be the case that they either don't understand the terms of the credit card contracts or they don't understand the effects of the ban. Somewhere there must just be some missing information, and therefore we must be back where we started, with the problem being a lack of information that could be resolved by providing more information.

So I take Robin to be saying that bans such as those instituted by the Fed cannot be shown to be non-coercive to credit card customers simply by recourse to the hypothesized "fact" that the bans are popular, because anyone who voluntarily chooses those terms and also supports the ban must be being inconsistent somehow. He also seems to be saying that this inconsistency means that we're just back in the world of standard economic models where one side is ignorant.

On the second point, either I am misunderstanding Robin or I think he's simply wrong. As I understand them, standard models of asymmetric information do not result in the ignorant party just getting screwed. Rather, they result in otherwise beneficial exchanges not happening, or in the terms being distorted in ways that come from the fact that one party is not informed (Robin, let me know if I misunderstand you or if you disagree). So even if everything else Robin says is right, it's still not the case that we're in a world where the problem is plain-vanilla asymmetric information, and where the solution is clearly to provide more information but not to ban. Robin might argue that people are in fact getting screwed but that the cure of banning is worse than the disease, but I don't see how he can argue that the central problem here is asymmetric information.

As for the first point, a couple of commenters pointed out that the inconsistency of preferences that Robin points to are not more irrational than the kinds of preferences that we see people have all the time. I think they're right about this, but I think there's a more direct way to square the apparent inconsistency. People today "voluntarily" accept those provisions because that's the way to get a credit card. In the world as it currently exists, it's those terms or nothing (with the limited exception of cards issued by credit unions and the like, which avoid such trickery)* and so people "choose" those terms. But they'd be happier in a world whether the equilibrium credit card terms are better, and they would prefer to be able to "choose" those. I don't want to overstate this point, as I think what's really going on is that people are badly confused and also (justifiably) hostile to credit card companies. But there is a perfectly sound story in which people would choose the terms and also approve of the ban.

BTW, for a neat example of how people trick and make no bones about the fact that that's what they're doing, see here.

*I would be very interested to know what fraction of people who have access to such alternatives use them.

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I think the standard economists' reply is off-base in this case, because the problem is not a lack of information, but too much information. A typical credit card agreement fills up several 8.5 x 11 sheets of paper in very small print. The credit card company has many lawyers who collectively know every word in that document. Most people are incapable of understanding an entire credit-card agreement. People don't read them any more than they read the 10-page terms of agreement you have to click on to "agree to" with almost every piece of commercial (and even free) software you install nowadays. Did you know you are not allowed to use Cygwin at work? Did you know you cannot use Java to develop software for use in nuclear power applications? Did you even read to the end of this paragraph?

Would it be more acceptable to a libertarian to see the government legislate a limit on the length of different types of contracts that can be offered to consumers, than to legislate their content?

(While they're at it, I'd like to see a legal limit to the length of legislation, too. Like a law saying that Congress, in a given term, cannot pass more than 30 pages of legislation for every day they've been in session.)

Limiting length might have the result that contracts would get even harder to read, as lawyers used terser language to say things more succinctly. Wait - no, I'm not afraid of that happening.

Did you know you are not allowed to use Cygwin at work?

I didn't, and you shouldn't either - because it isn't true. Cygwin doesn't have a uniform license; it's split between public domain, X11-like and GNU GPL (version >= 2). The most restrictive of these is the GNU GPL, and there is nothing in that license prohibiting use of the software for commercial purposes, or even selling copies of it - it's just that if you give anyone a binary which either includes or links against code you've licensed under the GPL, you also have to give them the source, and if you give someone such code (either source or object), you also have to give them all the freedoms for the entire package the GPL gave to you.

One practical upshot of all this is that if you use or link against GPL code, you probably won't be able to make money by distributing the resulting binaries according to a traditional proprietary software business model. But there's nothing preventing you from using GPLed software (either as distributed, or modified to your needs) for business purposes, selling gadgets that run GPLed software, or any of a bunch of other things.

You appear to be technically right, based on this. I remember reading the Cygwin license several years ago and concluding that I couldn't use it at work; now I can't remember if that was because of the GPL.

In practice, you can rarely use GPLed software libraries for development unless you work for a nonprofit. Cygwin is not a library, so you can use it as an operating system with no restrictions. I can't remember now why I was so worried about they licensing terms. Perhaps they were different then.

In practice, you can rarely use GPLed software libraries for development unless you work for a nonprofit.

That's a gross overgeneralization.

That seems to overstate it rather - it's a generalisation, but it's mostly true. Most software written for for-profit employers isn't GPL, and is often distributed even if only to a client or to other employees, so can't link to GPLed libraries directly. Still that's a long way from saying you can't use Cygwin at work. Sebastian Hagen's comment seems accurate to me.

Distributing to fellow employees is still internal to the company, is it not? So that would not trigger the public source clause.

Did you know you cannot use Java to develop software for use in nuclear power applications?

Well, they're not going to stop you, but they say that it doesn't live up to the associated safety standards and that you really shouldn't use it. And if you do use it, they won't be responsible if it screws up and kills a bunch of people.

(I actually read some of those license agreements once.)


Did you know you are not allowed to use Cygwin at work?

What? Cygwin's core is a mixture of GPL, X11, and public domain code; some of the optional packages add BSD, MIT, Apache, Artistic, AFL, and a few rarer open source licenses. Neither Cygwin as a whole nor any of the component packages has a EULA. None of the aforementioned licenses prohibit commercial use. So where's the problem?

I think you have hit a nail on the head there with the suggestion that people do not read their terms/contracts.

Back in the 80s/early 90s, I had a lot of credit (and money), and I would read every word of the contract with my credit instruments (Am Ex card, Visa, Lines of Cash Credit, etc.) as I would then know where they could get me, and where I could get them. For instance, I discovered that many Am Ex accounts, at that time, came with credit insurance as a standard item. And, all it would take was a call to a Dr. to have a late payment deferred so that no increase in credit charges would occur (this would be for their Optima Card and the Lines of Credit).

I believe that it is a case of inadequate information that causes many of the problems with the credit industry and the fact that no one really knew what to do about it when confronted with their own dilemmas. I also favor Gov't intervention in this case, as most people are not capable of handling their own affairs (who have been taken in by credit card companies offering them lines of credit that the people really shouldn't have taken). This is true especially for people who come from social classes where handling money was not something they had much of a choice about. People whose only choices are to pay their bills when they are able, and hope that they have enough to cover them. It is only when people have a disposable income that they tend to pay attention to such things, as they do not want to be just throwing their money out of the door.

When one has no disposable income, it is doubtful that a person will ever learn how to manage money beyond immediate payment of bills, or running away from debt.

It is this group of people who have mostly contributed to the debt crisis (and housing problem), when they were offered terms that looked fair, but in reality were too complex for these people to understand.

As for the OP... I am really not sure what the issue is. It seems to be a complaint about the Gov't having to step in to legislate against companies doing unfair things (exploiting the ignorance of the masses).

...because anyone who voluntarily chooses those terms and also supports the ban must be being inconsistent somehow...

If trees could get together and set a limit on how tall any one tree is allowed to get, they would be better off (by expending fewer resources on growing large trunks and more resources on reproducing), even though they're all individually better off violating any limit.

Robert H. Frank uses this idea to justify several types of labor regulations in his columns and books. I just want to point out the principle here and note that similar behaviors aren't necessarily irrational.

Regulations also act as a commitment mechanism. I might threaten to quit my (hypothetical) job if the wage is too low, but I would have a lot more to lose by quitting than my employer, so the threat isn't credible. However, if I manage to get a minimum wage law passed that's higher than my current wage, then I have to quit if I don't get a raise; as long as it's still profitable to employ me at the higher wage, the employer will give in. It's like ripping out your steering wheel when playing chicken.

I would have a lot more to lose by quitting than my employer

Why? You'll need to find a new job, which implies downtime, search costs, and possibly overhead for moving. Your employer will need to find someone to replace you, which implies downtime, search costs, and retraining costs. Either one of you might ultimately end up with a somewhat better or worse deal than they had before, depending on what exactly the market looks like and a luck factor. Why do you expect the employer to pay less of a price on average?

When you lose your job, you usually lose 100% of your income.

When you lose an employee, you usually lose only a fraction of your production capacity.

That's what I meant.

Money doesn't scale linearly with respect to utility: Your employer (presumably) has much more money than you do, so if it costs, say, $5000 to each of you for you to find a new job and your employer to acquire a new employee, you lose more utility than your employer does.

There's a nice paper by Bengt Holmstrom (Review of Economic Studies, 1999) that has a story about inefficienty high (but still voluntary) work effort in the absence of a policy that limits effort, such as a maximum hours restriction. The idea is that no one worker can cut back effort to the efficient level without appearing to be of low ability, and this is true even though employers know that all the workers aren't as good as they appear (their high output is largely due to the fact that they work too hard, not to how good they are).

Indeed; see also Race to the bottom.

In the world as it currently exists, it's those terms or nothing

The same point could be made about any price on a competative market: it's that price or nothing for an individual customer. Nonetheless, if large numbers of people were unwilling to pay that price/accept those terms, competitors would enter the market to cater for them.

There is something inefficient about the market, but I think it's just hyperbolic discounting: when signing the contracts, people don't care enough about their future selves.

Nonetheless, if large numbers of people were unwilling to pay that price/accept those terms, competitors would enter the market to cater for them.

And yet, in reality, this doesn't always happen. For years, people complained about restaurants being full of cigarette smoke; and some people had to stay home and not go out because they could not tolerate cigarette smoke. AFAIK, no one ever, anywhere in the US, voluntarily opened a restaurant that did not allow smoking. I may be wrong; but I would have remembered if any restaurant I had ever encountered had ever advertised the fact that they were a non-smoking restaurant, so that I could have gone there.

I can think of several, actually.

Tim Hortons in Canada (read: Dunkin Donuts) went non-smoking years before any laws were passed, though they'd occasionally have glassed-off smoking portions. They'd done reseach showing that their patrons (at least those who sat in the restaurant) were primarily the elderly, who mostly did not smoke.

And as for family restaurants, the examples are numerous; almost without exception they've been non-smoking since the mid-nineties.

But when it comes to restaurants and bars, smokers (circa 2000, at least) made up 75% of the clientele, and individually tended to spend twice as much as their non-smoking counterparts [citation needed, it was a study done in California is all I can tell you].

Quite frankly, as a smoker, I'm outright livid that if I open a bar on my private property, and allow smoking in it, I'll have uniformed thugs kicking down my door. Smoking's a social habit - we tend to be the people who enjoy bars. Even today, smokers are still a majority, even with all the regulations. And yet we have to stand in the -30*C Canadian winter to enjoy our habit.

Smokers are a majority in Canada?

In the US, it's about 1 in 4. 1 in 10, for people who finished 4 years of college.

I sympathize with your feeling oppressed by not being allowed to open a restaurant where people can smoke. But on the other hand, I don't feel strongly that we should allow people to open restaurants where people can snort cocaine; even though that's less addictive, less harmful, and a lot more fun.

Allow me to clarify:

Smokers are a minority of the population, but form a majority of bar patrons. The two habits tend to be positively correlated with eachother. Smoking is a social habit (frequently acquired socially, reinforced socially, and the shared experience of smoke breaks tends to encourage social behaviour); bars, similarly, are for when you want to get drunk with other people.

The concern is a private property issue, but the bar owners will naturally do what the market tells them. The fact is, even with smoking decreasing, the solid core of bar patrons continues to be tobacco users.

The people advocating for these laws, on the other hand, almost never go to bars. The smoke isn't affecting them (not two thirds of them, anyhow), and it's basically a political manouever to push people around - demonize smokers as The Other, and you'll win votes.

If there actually were a meaningful cohort of people desirous of non-smoking bars, then you wouldn't need a law - you'd already have them.

And honestly man, banning smoking has seriously impacted the bar scene. You just don't get the same quality of people in them anymore.

Just for clarification, I'm solely talking about bars, not government buildings, airports, or other common areas; someone's attendance at the bar is optional. If you're going to ban smoking there, then you can use the same logic to ban smoking in private homes - because it might harm visitors.

For what it's worth, the argument I'd heard--not that I agree with it, to be clear--was that visitors/patrons weren't the issue: the law was designed to essentially extend safe-work-environment laws to bars. Thus, it was the employees who were the at-risk party.

I wish that the law had been written in line with other hazardous materials laws. Then there would be (very expensive) smoking bars in which the staff wore full-on hazmat suits at any time that they might be exposed to the hazardous smoke, and so forth.

EDIT: to be clear, I mean this seriously, not as a joke about smoking laws.

In Canada? Here in Vancouver it is illegal to smoke within 6m of doorways, windows or air intakes of any building. It is hard to see how that level of restriction can be attributed to a work safety motivation.

“We are pleased that the City of Vancouver is taking a leadership role in efforts to reduce tobacco use and protect its citizens from the deadly effects of second-hand smoke. We are encouraging other municipalities within our jurisdiction to adopt these same by-laws,” said Domenic Losito, regional director of Environmental Health for VCH.

I'd heard it re: the smoking bans implemented in Minneapolis; I'm not surprised that Canada takes an especially paternalist position on the matter.

Also, more than votes are gained when demonizing smokers--there are also the smokers' tax dollars.

Brother, you don't even want to know what we're paying each day up here in Soviet Canuckistan.

sigh And they call the LOTTERY a stealth tax on the poor...

Surely the only reasonable argument for a smoking ban is that it imposes negative externalities on non-smokers in the same venue? The fact that many non-smokers dislike the smell of tobacco smoke would probably not in itself justify a smoking ban; it is the supposed negative health consequences of second hand smoke that motivates the ban. There is no equivalent 'passive snorting' effect for cocaine so there is much less reason to impose a general ban on taking cocaine in restaurants. If cocaine was generally legal I can't see a good justification for banning it in a bar or restaurant.

Even if secondhand smoke were completely safe, it could be banned for the same reasons as litter, which also tends not to be harmful to humans, just unpleasant. As for cocaine, maybe its general legality would let it be used in downscale places which don't want to attract families with children; but I expect lingering cultural pressures would keep it out of family places to avoid alienating core clientele, and keep it out of fine dining places for the same reason they forbid you to patronize them barefoot (because it gives off a low-status signal).

I think it is unlikely that general smoking bans would have become common were it not for the supposed negative health effects of smoking. Particular venues may have privately forbidden smoking to avoid exposing their customers to smoke they found unpleasant (as some did before general smoking bans became widespread) but my impression is that the clincher for the argument for a general ban which enabled such bans to overcome resistance from smokers and bar and restaurant owners was the health argument. I don't think littering is a very good analogy as no property owners were in favour of allowing littering on their property - it is a form of vandalism. In stark contrast, some of the strongest resistance to smoking bans came from bar and restaurant owners who wanted to allow smoking in their establishments because they believed it attracted more business from their customers.

I'm sure if cocaine was illegal many family oriented establishments would have a private ban on its consumption. I'm less convinced about your fine dining theory - cocaine is very popular amongst the kinds of people who often frequent expensive restaurants (finance industry workers, celebrities, the media, etc.).

I have even been to some Fine Dining restaurants in LA where I've seen Cocaine being used. They weren't lining it up on the tables though, and it was done pretty discretely.

From what I have read about the 20s and the Speakeasies. I get the feeling that we would see cocaine use become very prevalent in all manner of upscale places. It would be just one more method of showing off one's sophistication and wealth or importance.

The smoking bans have me at a loss though. I mostly worked at bars and nightclubs during the period right before and after the passage of the ban in CA. I know that none of the owners of the clubs or bars supported the bans, and one of the owners owned several pretty expensive restaurants down near Union Square. He was scared to death that he would lose business at all of his places if the ban went into effect (and he did lose one restaurant). Yet, I never asked him specifically why he was opposed to the ban, nor if he might support it in a different form (better isolation for smoking clientele, for instance). I know as a non-smoker I was hoping that it would pass, but as someone who worked in places where my pay depended upon tips... and tips only come from customers... It made me worry a bit (and smoking customers tended to tip better, as they were usually drunker than the non-smokers).

Very good point, Phil, yet I think there are some differences between snorting cocaine and smoking.

Once upon a time, you did have patrons who would snort cocaine at formal dinner parties or at clubs. And, these were sometimes affairs where smoking was relegated to another room (actually, there are differences there between the types of smoking. Cigar and Pipe smoking was often relegated to a separate room, but cigarettes were allowed almost anywhere.

Although it does not explicitly discuss what I am saying here, the PBS Frontline series on Drugs did document the social uses of Cocaine, and mentions the many (now nearly impossible to find) movies that glorified Cocaine.


Long before I ever did any sort of Narcotic, I invested a lot of time in learning about these substances (mostly for professional reasons), and was surprised at how hypocritical our treatment of Alcohol and Nicotine is in comparison to Cocaine, Opiates, Amphetamines, and especially Hallucinogens and Cannabis (or its derivatives).

Personally, I think that we should allow clubs to decide for themselves what they will allow. I do understand that this will cut off a great many patrons from some venues, and that presents a problem that I am not certain if legislation is the way to handle - although it does need to be addressed.

But, then I could just be glorifying memories of stories about the days of speakeasies when one could buy anything at the bar, from alcohol to heroin.


I'm pretty sure the number of smokers > the number of stay-at-home complainers.

I'm fairly sure that I've encountered no-smoking restaurants without there being a local law against anyone smoking in restaurants at all, but I can't remember any specifics offhand of those cases. I do, however, specifically remember one of the casinos in Atlantic City heavily advertising that they were completely smoke-free, before the no-smoking laws were passed in NJ.

I can't speak for the US, but I think there were some in the UK. I didn't really go to restaurants before the ban (and still can't afford to much) but I never remember there being much smoke around; maybe they found other ways around the problem, like better ventilation.

Even if not, it may simply be that smokers care about wanting to smoke a lot more than non-smokers care about not wanting to inhale smoke.


As one of many non-smokers who can get terrible splitting headaches that last for hours if I sit next to a smoker for about 10 minutes, I find that hard to believe.

Economists are very fond of the argument of the following form:

"if Thing X that you think is bad in a particular market was really bad, some firm have an incentive to enter and offer a product without thing X and get tons of customers. Therefore, Thing X must not really be bad."

And it is a powerful argument. But not nearly as powerful as it's sometimes made out to be. The economics literature is full of stories in which bad things happen in stable equilibria. And I suspect that there are many more such stories that have not yet been written down. On the credit card thing in particular, there is the Laibson & Gabaix (2006) paper that I cited in the earlier post. The practices are bad and there is no incentive for an entrant to enter and offer a product that doesn't use them.

I didn't say it's not bad, but that people don't mind it at the point they take out the cards.

My argument wasn't against your post in general (I'm something of a fan of nudge-style economics, though I worry about regulatory capture) but that the apparent lack of choice is misleading: if people wanted choice, it would provide itself. Rather, the problem is that people don’t really prefer, at moment of choosing, simple terms over tricky ones, and that this is probably due to hyperbolic discounting.

Edit: and because of this, they can't, at time of purchase, want the terms banned. You might seek an ex-post coalition against them, but that's hardly in keeping with impartiality and the rule of law: they already know they're the losers, so their viewpoint will hardly represent the average customer.

In short: I’m not saying that bad equilibrium can’t be stable in a free market, but that unpopular ones aren’t.

Exactly so, IMO.

People unconsciously value the availability of credit to their present selves more than they value the freedom from junky terms to their future selves.

Whether or not this is a specific problem worth solving in some paternalistic fashion, I do not know. I think the general problem of hyperbolic discounting is a big problem worth solving. Iif only I knew the solution...

And it's doubly bad: any political response would suffer from hyperbolic discounting too!

About the only things I can think of that don't suffer so are things like prediction and stock markets.

So, if the average consumer is not aware of the effects of hyperbolic discounting, and of how to counter them, then we have an information imbalance, which can be rectified by passing laws which prohibit contracts from taking advantage of this bias.

If it were only ignorance that were the problem, the Government could simply inform people about hyperbolic discounting.

Furthermore, this would be an incredibly broad set of laws: virtually every aspect of our lives is sub-optimal because of hyperbolic discounting. Given that these terms and conditions aren’t even unpopular ex ante, the general application of this principle would permit virtually any legislation to be enacted; and given public choice theory, they probably would be. I’m pretty sure that every lobbying group could pretty quickly translate its grievances into ones about hyperbolic discounting: feminists, environmentalists & religious moralists spring to mind immediately.

Hyperbolic discounting may be a big problem (the big problem?), but even ignoring regulatory capture, I don’t think legislation is the answer.

So, you are saying that some people can be made better off by overriding their voluntary contracts with others. That is most definitely true in many cases.

The problem, I think, is that how do you judge which contracts are "fair" and which aren't (and so should be overridden)? There will certainly be disagreement about which contracts are fair (and which contract participant should be given a better deal). Whoever is "the decider" is (if they are altruists) essentially comparing the utilities of different people to each other and redoing the contract so that utility can be maximized (between both people).

As far as I can tell, there is no difference between directly comparing the utilities of two different people (and choosing which should be made higher) and preference for one person or another of "the decider". Is there really an objective rule that would tell us the answer or would it always (in practice) come down to however "the decider" decides to remake the contract (in preference of one party over the other)?

[Please forgive me if this post didn't make any sense, it is late and I am very tired.]

This is the primary problem with paternalism, and a good reason why it should be limited.

I'm likely more sympathetic to your argument than most here (though not more sympathetic than society generally), but the end BTW link puzzled me.

The link is to an analysis of a restaurant menu analyzed by a book writer who appears unaffiliated with the restaurant; I don't think the restaurant is making no bones about tricking people.

Further, I don't think they're tricking people. I've been tricked by restaurant menus, so I'm not someone who says that can't happen.

But the menu in the link is attempting to sell food for money. They are, no doubt, trying to maximize profit. But there's no dishonesty, just marketing. If we're going to end up regulating this type of marketing, it seems to me that will end badly. "Trickery," to me, is an unwelcome surprise. Trickery's not pictures of food and menu presentation strategy. Or have I missed something substantial?

You're right that I made it sound like it was the restaraunt itself admitting the trickery, which it wasn't. My mistake. And I certainly am not suggesting that the government should regulate the placement of prices on menus. I linked that article simply as a nice illustration of the fact that sellers are always and forever manipulating buyers, rather than simply informing them. Even something as straightforward as a menu is seen not simply as an opportunity to let patrons know what is available and at what price, but to push their buttons.


The main bias one can find here is "not being able to see past your favourite economic model" bias which most opponents of abusive term bans have. Market efficiency is a neat concept, but it's nothing more than that. It models reality only very roughly. This bias is ridiculously pervasive among economists.

I think there's probably an equally pervasive "they're wrong because they won't look outside of their view of the X" bias.


Somehow I find it with economists more often than with any other profession. Here's relevant post about this phenomenon on today's Marginal Revolution.

This bias is ridiculously pervasive among economists.

You should bet against economists about the predictive accuracy of their models. If you can do better, you'll be rich.


That's pretty much what Nassim Taleb did, and he reportedly made a killing in the recent crisis.

I'm curious, has anyone figured out the average gain made by individuals who intentionally relied on the standard predictive models? It's at least possible in principle that those individuals gained enough by using their models to justify their use.

Information that cannot be understood is not information at all to the person in question. Sometimes that simply means that the person who doesn't understand needs to learn how to understand it, but often it equates to simple fraud, ethically and economically speaking. A company with a thousand lawyers can always write something that you will not understand, and do it intentionally, just to screw people seeking a fair deal. I would posit that this is why so many people hate lawyers.

I use a debit card from my credit union, although I have since moved and it's rather inconvenient. I would have switched to a more local credit union except that I've been too lazy and I will probably be moving again in the next year.

I've never met someone else who used a credit union (except my dad.)

Since your preferred explanation does not require anything beyond ordinary ignorance, I don't see how you can claim that this phenomena requires us to postulate such a thing. I think you should try to get a little more formal with your analysis.


I can't parse this - Robin seems to be saying that David is saying that, if Robin thinks that "abusive terms" should be allowed in credit card contracts because they are mutually agreed to, that this requires Robin to postulate "such a thing", where "such a thing" is, um, something beyond ordinary ignorance. I can't resolve which claim of David's Robin is referring to when he says David claims Robin must postulate this thing.

I don't see the point of contact with the argument. Or an answer to the direct question as to whether the problem is asymmetric information.

I would think that, if Robin believed the problem was asymmetric information, that would not require anything beyond ordinary ignorance. Since he ascribes that explanation to David, I infer that Robin does not believe the problem is asymmetric information.

The models I have in mind are the standard "lemons" adverse selection model and other models in which one side doesn't know something important about the other side's attributes, for example a government purchaser who doesn't know if a particular contractor has high costs or low costs. In the lemons model, the market unravels partially or entirely. In the other models, the agent that knows its attributes can earn some "information rents," which are necessary to get the low-cost agents to reveal the fact that they are low cost. In these models, the uninformed agent does not simply proceed as if it didn't know it was uninformed, the equilibrium outcome is a product of the fact that both sides know that one side is uninformed. When these models apply, remedying the information asymmetry solves the problem directly. I don't see how they apply to credit card contracts and other similar examples. Are you saying that they do?