A few recent federal regulations have been accompanied by Regulatory Impact Analyses in which benefit estimates assume that consumers are, well, stupid. Exhibit A in this genre is the RIA prepared by the National Highway Transportation Safety Administration in support of the last increase in corporate average fuel economy (CAFE) standards for passenger cars and light trucks. NHTSA counted as benefits from regulation savings from reduced fuel costs associated with more fuel efficient vehicles. But for this to be cognizable as a benefit, there must be an externality preventing consumers from rationally accounting for fuel costs. Consumers must be incapable of recognizing reduced fuel costs as private financial benefit; regulation must be needed to internalize this externality and capture the benefits.
In a different context, a recent federal district court opinion explains the limits of the “consumers are stupid” meme. The case pits WesternGeco (the holder of five relevant patents) against ION Geophysical Corp. (an alleged infringer).