Risk-Taking Behavior: Protecting Consumers From Themselves

ABSTRACT - No social system is equipped to expend unlimited resources on protecting its members. Each system must establish some level of individual self-responsibility to be required of its constituents, beyond which no systemic protection will be afforded. This paper argues that the current Federal Trade Commission deceptive advertising standard demands a level of self-responsibility analogous to that of the tort law of negligence. Then, drawing upon that analogy, it is argued that consumers' beliefs and confidence in their beliefs about a product's attributes can be applied as a screening device, to aid in determining whether a claim should be regulated.


Jef I. Richards (1990) ,"Risk-Taking Behavior: Protecting Consumers From Themselves", in NA - Advances in Consumer Research Volume 17, eds. Marvin E. Goldberg, Gerald Gorn, and Richard W. Pollay, Provo, UT : Association for Consumer Research, Pages: 313-320.

Advances in Consumer Research Volume 17, 1990    Pages 313-320


Jef I. Richards, University of Texas at Austin


No social system is equipped to expend unlimited resources on protecting its members. Each system must establish some level of individual self-responsibility to be required of its constituents, beyond which no systemic protection will be afforded. This paper argues that the current Federal Trade Commission deceptive advertising standard demands a level of self-responsibility analogous to that of the tort law of negligence. Then, drawing upon that analogy, it is argued that consumers' beliefs and confidence in their beliefs about a product's attributes can be applied as a screening device, to aid in determining whether a claim should be regulated.


The Federal Trade Commission (FTC), even at its apex of regulatory activity, has always operated on a budget that forced its staff to be extremely selective in choosing which advertising claims it would prosecute. For example, in 1970 Eckhardt recognized:

The Federal Trade Commission currently receives about 9,000 complaints a year. It is able to investigate only one out of eight or nine of those, and of the small fraction investigated only one in ten results in a cease and desist order. (Eckhardt 1970, p. 670)

Although precise figures are unavailable, it is likely that in the recent atmosphere of deregulation (Preston and Richards 1986, p. 613-15) those percentages currently are far smaller. The simple reality is that this agency has very limited resources, and its staff must marshall those resources, arguably, to serve the best interests of the public-at-large. An ad, e.g., that deceives only the most careless consumers cannot justifiably burden those resources so long as other, more egregious, deceptive ads remain unregulated.

A few techniques have been proffered by researchers for "screening" ads or whole classes of ads to help with this resource allocation, by evaluating whether the FTC should dedicate greater attention to these ads. Most notable of these is Gardner (1975), who proposed three separate screening devices: the Normative Belief Technique, the Consumer Impression Technique, and the Expectation Screening Procedure. Each of these is designed to identify ads or types of ads which may be deceptive, so the FTC can concentrate its efforts on ads with the highest probability of deceptiveness rather than potentially wasting resources on ads with lower probabilities of legal violation (Gardner 1976).

Several other authors have developed typologies of deceptive ad claims (Preston 1989; Rosch 1975; Aaker 1974; Armstrong and McLennon 1973), and Grunert and Dedler (1985) developed a method for building such a typology. Typologies offer the possibility of identifying certain commonalities in deceptive claims, enabling the FTC to target types of claims with greater probability of deceptiveness.

The method suggested below takes a different approach, intended to augment rather than supplant those techniques. After an ad is identified as having a high probability of deceptiveness, this method is designed to assess whether the risk to the consumer, resulting from the potential deceptiveness, is one the consumer is willing to assume. If consumers are willing to accept the risk of loss, I suggest, there is no need to allocate further FTC resources to adjudicating the claim. In the present political atmosphere regulatory resources are much too scarce to engage in such paternalism, no matter how socially advantageous it may be.


Prior to creation of the FTC (FTC Act of 1914), laws regulating selling claims closely paralleled the tort law of negligence. Both bodies of law reflected changing societal views toward the individual's role in a free-market political and economic system.

Until the 1800s English and American common law affecting selling claims tightly embraced the concept of caveat emptor, providing consumers little or no-protection from inaccurate sales promises. During the 1800s, however, significant inroads were made toward greater consumer protection (Preston 1975).

In like fashion, the concept of negligence, as an independent ground for legal liability, first began to take shape in the eighteenth and early nineteenth centuries (Baker 1979, Ch. 19). This new legal action held parties responsible for damages or injuries caused by their carelessness (James 1951). And like the laws concerning selling claims, the doctrine of negligence flourished in the 1800s as a response, in large part, to societal and judicial concerns for victims' welfare, during the rise of business enterprise through the industrial revolution (Schwartz 1981).

Both bodies of law were directly affected by economic developments of the time and concurrent reinterpretations of classical liberal political and economic philosophies regarding individual freedom of action, which were slowly recognizing the benefit of some governmental intervention as a means of promoting consumer sovereignty (Swagler 1975, Chap. 8). There came a recognized advantage to shifting some of the burden for individual welfare, from victim to purveyor, as economic power became concentrated in business entities. Within the marketplace, this meant the growth of "consumerism" (Preston 1975).

As the FTC's influence took hold in the 1900s, these two areas of law diverged from their parallel course. Under the FTC Act (1914), and later the Wheeler-Lea Amendment (1938), the Commission's authority to regulate industry was immense (Welti 1983). The eventual consequence of this vast authority was that individual protections from advertising claims far outpaced individual protections under negligence law. Where negligence standards required only that parties act reasonably to avoid injury to others (James 1951), the FTC held sellers responsible for the mere capacity to mislead even the "foolish or feeble-minded" (Heinz W. Kirchner 1963). Unlike negligence, advertising law permitted consumers to take virtually no responsibility for their own transactions in the marketplace, resulting in a new maxim of "caveat venditor" (Rotzoll, Haefner, and Sandage 1986, p. 123).


The deregulatory philosophy that characterized the Reagan administration was clearly manifest in the FTC's approach to advertising deception during the 1980s. The Commission, apparently attempting to implement administration policy, took this opportunity to completely redefine its deceptiveness standard, shifting part of the responsibility back onto consumers. Where the former standard protected essentially all consumers, even the "foolish and feeble-minded," the new standard protects only consumers acting "reasonably under the circumstances" (Cliffdale 1984). Once again we can see a parallel to negligence, which is defined as a failure to do what the reasonable person would do under the same or similar circumstances (Restatement of Torts 1986, section 283).

The analogy is not yet complete, however. Where negligence holds parties responsible when they act unreasonably, the FTC holds sellers responsible unless buyers act unreasonably. The latter is more like the standard for a legal "defense." A closer parallel, therefore, arises between the FTC standard and a defense to negligence known as "contributory negligence." With this defense a negligent defendant is liable unless the plaintiff was also negligent, i.e., failed to act reasonably under the circumstances (Restatement of Torts 1986, section 464). The current deceptiveness standard, consequently, is analogous to the contributory negligence defense because both require the "victims" lo act reasonably, placing on those victims part of the responsibility for resulting injuries. The philosophy behind both the new deceptiveness standard and contributory negligence is that individuals should take some responsibility for themselves before the law will intercede.


Drawing upon that philosophy of requiring individual self-responsibility, it is an easy matter to further extend the analogy between advertising regulation and negligence. There is another defense to negligence, conceptually similar to contributory negligence (James 1952), known as "assumption of risk." In simple terms, this defense states that when faced with a known risk a person may voluntarily proceed in a course of action, and by doing so assume the consequences of that risk, thereby releasing the creator of that risk from any potential liability. The keys to this defense are that 1) the risk must be known and understood, and 2) the party must accept that risk voluntarily (James 1952). If, for instance, you know your friend has had too many drinks, yet agree to let him drive you home, you may be said to have assumed the risk of being involved in n accident. You could be barred from suing your friend for injuries you receive. This principle is often stated by the legal maxim "volenti non fit injuria," which roughly translates as, "that to which a-person assents is not esteemed in law an injury" (Edwards v. Kirk 1939).

Again, the emphasis is on requiring individuals to assume some self-responsibility. James reveals insight that supports the analogy proposed here, with the following remark about assumption of risk:

It will be apparent at once that the whole spirit of the defense and of the reasoning it employs, bears the strong imprint of laissez faire and its concomitant philosophy of individualism which has passed its prime. For the most part it is a product of the same climate of opinion that gave vitality, for example, to caveat emptor . (James 1952)

I should note, however, that it is not my purpose here to pass judgment on the wisdom of current FTC policies, but merely to show that the risk assumption concept is compatible with those policies.

Applying this concept to advertising regulation, it is arguable the FTC should not expend its limited resources to protect consumers who know they may be deceived yet voluntarily purchase a product in spite of that risk. This comports with the negligence-like approach presently adopted by the FTC, as well as the philosophy of individual self-responsibility underpinning that approach. The practical difficulty, however, is identifying which claims present a risk that consumers are willing to assume.


Negligence law offers some guidance in this determination. As mentioned earlier, the elements of assumed risk are knowledge and voluntary assumption If we find that consumers have knowledge of the potential risk, we can safely assume any subsequent purchase of the product is voluntary, since purchase is rarely forced upon a consumer. One might argue this is controverted in the case of addictive products, but where there is addiction the consumer is intimately familiar with the product, making deception a virtual impossibility. To identify claims where risk is voluntarily assumed, therefore, only requires evidence that the risk is known. This knowledge can be inferred by measuring both consumer beliefs about product attributes and the confidence with which they hold those beliefs.

Deceptive claims cause false beliefs. However, there is a qualitative difference between a claim which causes consumers to hold to false beliefs with confidence that they are true and one which causes uncertainty or suspicion. Where suspicion exists, consumers are aware there is an element of risk involved in purchasing the advertised product. A reasonable consumer faced with such suspicion will either seek out additional sources of information to confirm/disconfirm those beliefs, or will assume the risk that the belief is false (irrespective of individual factors such as category expertise or brand loyalty). Where the potential loss is substantial they might be expected to seek other information, but where the product cost is small it might be quite reasonable to assume the risk of loss. This, essentially, is the premise of the common distinction between high and low product involvement (Smith and Swinyard 1982).

Consequently, knowledge of risk can be inferred where consumers hold false beliefs but have relatively little confidence in those beliefs. By screening ad claims for resultant beliefs and belief confidence, it should be possible for the FTC to avoid prosecuting claims where consumers are willing to assume the risks.

This argument, however, is pointless if consumers never hold low levels of confidence in their beliefs, or if the FTC never prosecutes such claims. Consequently, a simple study was conducted to determine whether there are significant differences in belief confidence for claims found deceptive by the FTC. Additionally, the method used in the study is offered as an operational example of how confidence-based screening might be achieved.



90 undergraduate students were recruited from introductory advertising classes. Prior to participation in the study, subjects were screened to ensure they had normal or corrected-to-normal vision at typical reading distances. Because these students were in their first advertising class, and had not yet discussed regulation, there was no reason to expect their course of study to unduly bias the experiment.


The purpose of this study was to determine whether claims actually found deceptive by the FTC varied significantly in the confidence with which consumers held their false beliefs. A search was conducted to identify all FTC cases, in a 10-year period from 1977 to mid-1986, which ended in a Commission finding of deceptiveness. Of 23 cases identified, six were chosen that involved print ads and provided sufficient information to locate or reproduce the challenged advertisements. Those cases were Sterling Drug (1983), Sears (1980), Kroger (1981), Thompson Medical (1984), Litton (1981), and Cliffdale (1984). Copies of the actual ads challenged by the FTC were found for two of the cases, and the remaining four were reconstructed with a computer, to as nearly resemble the original ads as possible. Each ad was used in its entirety, rather than reproducing only a single claim, because it is the impression created by the ad as a whole that is important under the law (Thompson Medical 1984, p. 790).


A one page questionnaire was prepared for each ad. The cases varied in the number of claims found deceptive by the Commission, and a few claims were not tested because of their similarity to other claims being tested or because of legal technicalities involved in finding them deceptive. Consequently, the number of deceptive claims tested varied from one to four per case, for a total of 14 claims (Figure 1). To mask the purpose of the study, nondeceptive claims from each ad were also tested on the questionnaires.

Claims were evaluated on separate 13-point scales that tested first the belief that the claimed attribute was associated with the product or service, then the subject's confidence in that belief. The "materiality" (Cliffdale 1984) of each claim was also tested, but is not of concern to the present discussion.

The belief scale for each claim stated the alleged falsity on one end, and the truth about the concerned attribute at the other end. For each, subjects were asked what they believed to be true about the product. An example is depicted in Figure 2. The truth-falsity polarity of the scales was randomly assigned, to avoid demand effects.

The confidence-scale immediately followed, and simply asked subjects, "How confident are you?" Their response was marked on a scale ranging from "Very Unconfident" to "Very Confident" (Figure 3).


A total of 30 subjects participated in each of three treatment groups. In each group subjects viewed both advertisements and memoranda about ten different products/services, including two of the six advertisements which are subject of the present investigation. Each condition, therefore, saw ads for only two of the products involved in this study. Presentation sequence was randomized, so that each condition saw the ads of interest at different times during the experiment, to avoid order effects.

Subjects were each given a questionnaire booklet, consisting of a cover-sheet with instructions, followed by stimuli and questionnaires. Subjects were instructed to turn each page of the booklet only upon direction of the experimenter. They would view a stimulus on one page of the booklet, and after all in the group had completed viewing it to their satisfaction, they were permitted to turn the page and answer the corresponding questionnaire. This was repeated until all stimuli had been viewed and evaluated





The mean evaluation of each claim, for both belief and confidence, is shown in Table 1. It should be noted that this was a between-subjects design, intended only to measure the difference in belief confidence among the 14 claims. Analysis of Variance was used to test the differences between confidence levels for the claims. The difference was found to be significant (F(13,406) = 3.215, p < 0.01)

Mean belief for 11 of the claims (78.6%) scored above 7.0, the scale centerpoint, placing them toward the scale end labelled with the false claim. The remaining 3 claims (21.4%) fell toward the end labelled with the truth about the product attribute. Mean confidence scores for 12 claims (85.7%) fell on the "confident" side of the scale, and two (14.3%) fell on the "unconfident" side.


The results suggest not only that there is a significant difference in the confidence with which consumers hold beliefs about advertising claims, but that this difference holds true of even those claims found deceptive by the FTC. From this it is apparent that for some claims being regulated in the public interest consumers are significantly more suspicious of their own beliefs, than for other claims demanding regulatory resources. By extension we can infer that consumers are relatively more willing to assume the risk of loss in those instances, if they proceed to purchase the products in spite of those suspicions without seeking further information .

Mean confidence scores varied from 5.93 to 10.20, representing a continuum within which consumers appear to have varying levels of suspicion about the reliability of their beliefs. From a policy standpoint, the difficulty is applying this information to determining which claims merit regulation and which do not. There is no natural dividing line, where we can confidently conclude consumers on one side will voluntarily assume the risk of loss while those on the other side will not.

It would be possible, of course, to rank-order confidence scores, and to devote regulatory attention to ad claims in order of their scores, starting with the highest score. This, however, would be unsatisfactory because the levels of belief also vary, with some claims conveying greater falsity than others. It is certainly arguable that claims conveying the greatest falsity deserve high priority by regulators.

It would also be possible to rank-order priority of the claims based on a combination of belief and confidence scores. This would account for both degree of falsity conveyed and degree of suspicion held by consumers. This approach, too, is imperfect, because it assumes the belief measure used is an accurate assessment of the claim's deceptiveness, contrary to the criticisms made by Richards (1990) of various deceptiveness measures. This belief measure is no more than a rough indicator of deceptiveness, inasmuch as this procedure was designed as a simple screening procedure and not to determine a claim's deceptiveness. It is not intended to identify which claims deserve first attention by regulators, but rather to eliminate a few claims before undue expense is incurred.

I propose, therefore, that the centerpoint of the scale be used as a cut-off point for confidence. Where a mean evaluation falls below 7.0 on the present scale, subjects on average are indicating they are "unconfident" in their beliefs, suggesting that most are suspicious that their knowledge may be in error.


Though the belief measure is not a wholly accurate indicator of deceptiveness, it is arguable this is a rough indicator, not unlike Gardner's (1975, 1976) methods, which could also be used to eliminate claims with low probability of being deceptive. Where the average subject evaluates the product to fall toward the true end of the scale, the majority of them are unlikely to be deceived. And, while the claim might actually prove deceptive with a more rigorous test, the low probability serves as some indicator that the FTC may be wasting its money to pursue the claim further. In fact, the belief measure used here is quite similar to empirical measures frequently used by the FTC to actually determine deceptiveness, except that the typical dependent variable used in regulation is comprehension rather than belief (see discussion in Richards 1990). Arguably, belief is the superior indicator of deceptiveness (Richards 1990).

The mean evaluation for each claim used in this study is plotted in Figure 4. If the FTC staff were to adopt this simple test, using the mid-point of both scales to screen out claims unworthy of the agency's financial resources, only those claims falling in the upper right quadrant of this figure would qualify for further expenditures. Thus, 5 of the 14 claims would be excluded from consideration. Where other claims for the same product fall within the upper right quadrant there would probably be little or no savings by excluding those claims falling outside, but where the challenged claims all fall outside, substantial savings could be realized by not pursuing that case.


The policy foundation for the law of negligence is functionally equivalent to that on which the present FTC deceptiveness standard is erected. While legal decisions regarding negligence span nearly two centuries, the recent re-definition of

deceptiveness raises significant questions about the utility of many decisions in the FTC's 75 year history. It is reasonable, therefore, to look to the law of negligence for help interpreting the new deceptiveness standard.

Many critics of present FTC policies may disagree with the idea of implementing a screening method which screens out not only nondeceptive claims (ala Gardner), but deceptive ones. Unfortunately, where congressional funding for the agency is insufficient to prosecute all deceptive claims, some form of regulatory triage is inevitable, with the only question being how it will be achieved. While the elimination process could be done on an ad hoc basis, or based on factors like the political visibility of certain advertising practices, an approach premised on theory promises much greater equity. The method presented above is such a theory-based approach.

This procedure is a simple one, because the objective was to save money, not to find new ways to spend it. It requires a very small number of subjects, though ideally they should be chosen randomly from the target market, and it takes only a few moments per ad. Because it is simple, however, it is a less-than-perfect screening tool. It would be possible to unintentionally screen out a claim that deserves regulatory attention. But, this approach is likely superior to one with no theoretical focus, and might be further improved by scholars with expertise in consumer decision-making.



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Wheeler-Lea Amendment, Pub. L. No. 447, Section 3, 52 Stat. 111 (1938).



Jef I. Richards, University of Texas at Austin


NA - Advances in Consumer Research Volume 17 | 1990

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