Open Review of Management, Banking and Finance

«They say things are happening at the border, but nobody knows which border» (Mark Strand)

Juridical Implications of Neuromarketing at-a-glance: from Consumer Protection to Financial Perspectives

by Ettore Maria Lombardi* and Diego Rossano**

ABSTRACT: Modern techniques of monitoring brain functioning – not simply to design efficient advertising contents – are used by neuromarketing. Because it has the capacity to interfere with and to influence decision process of customers and investors, neuromarketing is regarded as highly controversial. This paper examines possible juridical implications of neuromarketing  in different fields, from privacy protection to function of regulators in evaluating risks coming out from banking and financial market’s . It suggests possible issues of validity of legal transactions made under influence of neuromarketing based advertising as well as applicability of unfair practices in advertising. The conclusion of the article is to evaluate if current regulation of unfair practices as well as the regulation of privacy and evaluation of risk assure an appropriate level of protection for the consumer and the investor.

SUMMARY: 1 The Impact Of Neuromarketing on Today’s Society: The Role Of Technology. – 2. The Operational Areas Of Neuromarketing. – 3. The Features Of Neuromarketing and Their Effects On The market. – 4. The Impact Of Neuromarketing On Data Protection and Unfair Commercial Practices. – 5. Neuromarketing and Intellectual Property Law At First Sight. – 6. Regulation models of finance. – 7. Neuromarketing and Its Influence On Analysis and Comprehension Of Financial Risk. – 8. Some Final Thoughts On The Role of Neuromarketing Towards Consumers and Finance.

1. An investigation aimed at grasping the value of the impact that neurosciences are able to exert on the consumer (neuromarketing) and on the current perspectives of finance, cannot disregard the consideration of their versatility and the different effects they are capable of producing.

If, in fact, by neuromarketing we mean a recent and innovative field of study based on neuroscience and marketing, which has as its objective the evaluation of the sensorimotor, cognitive and emotional responses of subjects to marketing stimuli, we clearly understand the role that, in this process, it is played by technologies.

This branch of marketing is based on the link between measurable neurophysiological data and parameters that can be used as a metric to evaluate moods (parameters related, for example, to the subject’s level of involvement and fatigue)[1]. The main parameters derive, as explained below, from studies concerning emotions and cognitive load, studies which therefore constitute a general theoretical basis for the development and application of neuromarketing.

It is no coincidence that through the application of brain analysis technologies and biometric sensors, neuromarketing aims to understand[2], at a neural and physiological level, the reasons that drive individuals to opt for a specific choice[3]. This allows companies to take advantage of an additional tool, to complement traditional marketing surveys, to create effective products, services and advertising campaigns.

Given, therefore, the function of technology, the problem that arises is to evaluate the impact that the changed socio-economic framework may have on the concept of consumer and investment, as conceived up to now, in parallel encountering the increasingly felt need to elaborate a homogeneous and systematic approach that does not fail to consider the disruptive features of technology. In this regard, two types of technological evolution can be understood, being able to speak, on the one hand, of sustaining technology (technology that either gradually evolves or simply improves existing technologies), and, on the other, of disruptive technology (new type of technology which, as soon as it is introduced, could appear less reliable than already existing technologies, but which would present a tendency to acquire rapid credibility)[4].

This last notion therefore concerns technological tools which, in an initial phase, appear to be of uncertain application, and which, once a certain recognition has been acquired, can profoundly affect the reality in which they are applied, and, consequently, the operating methods of the economic models that are in place. It is in this stage that the distorting effects arising from the new technology are produced and the new business models, which benefit from the innovative technological application, begin to threaten the existence of the traditional models which have been used up to that moment[5].

Certainly, the invention of the internet and the affirmation of intelligent technologies have produced evident distorting consequences, as is well demonstrated, for example, by e-commerce, which the market, in the first instance, timidly approached, understanding it as a form merely an alternative to the material exchange mechanisms that see their point of reference in the physical store, to become, in a short time, a new and successful way of trading which, built on the use of the web, has meant that online exchange competed seriously , often even replacing them, with bricks-and-mortar stores.

Since that time, the use of the internet and digital technology has expanded enormously, stimulating the emergence of ever new business models that make the digital world their own and causing the emergence of interesting problems in numerous branches of law.

This last requirement, at least on a theoretical level, could facilitate the overcoming of both the possible structural gaps and the application difficulties linked to disruptive technologies and expressed in the adoption of fragmented and differentiated regulatory solutions. A valid contribution, in this sense, could come from an appropriate cost-benefit analysis, especially with a view to introducing a unitary reference regulatory framework and achieving an appropriate balance between the opposing and conflicting interests of which they are bearers, on the one hand , the subjects who put digital goods on the net, and, for the other, the users-consumers.

It can be held, then, that, where technological developments take on an authentic distorting character, it might be necessary to proceed with a change also of the normative-categorical level which allows to face the lack of resistance of the norms that refer to a given institution and, therefore, the impossibility of their mere adaptation to problems created precisely by the distortion produced by the new technology[6].

Alternatively, and provided that the changes produced by technological innovation are not such as to involve excessive alterations within the system, one could hypothesize the maintenance of the already existing settings, clarifying their application in the context of a new framework: the distorting effect would be minimal, demonstrating the organic and flexible structure of the existing regulatory system and its potential extension to the new system that has arisen[7]. Think in this sense, and just to give an example, of the updated guide that the European Commission has issued on the Unfair Commercial Practices Directive[8].

Finally, if the technological change, while causing a distorting effect in the conduct of business, did not reverberate on the legal world and made minor changes sufficient, a further possibility would arise: evaluating whether to proceed with limited reforms (i.e. clarifying or modifying the main definitions, amending the formulation of existing legal rules or even extending the scope of the rules already in place) is sufficient to address the new and specific issues that technological change has generated.

In this last perspective, a commonly invoked principle is that of “functional equivalence”, according to which, for example, once the essential characteristics of the new approaches developed in the light of the existing legislation have been identified, we proceed to consider the way in which they can be extended to any other new situation that requires regulatory intervention. It follows that, if such an approach were impossible or insufficient and it appeared appropriate to proceed with the elaboration of a new set of rules, expression of new principles and normative-doctrinal guidelines, the technological innovation would herald an authentic distortion of the regulatory system.

In the perspective outlined, the need to conceive consumer and financial investment law appears clear, as well as that of the various operators in the sector (the consumer-investor and the professional), in such a way as to consider the effects linked to changes in the market which also originate in the gradual affirmation of digital platforms.

From this point of view, the collaborative nature that is often perceived in such platforms conditions an essential profile of consumer law and finance, because if these regulatory bodies presuppose the presence of a “professional” and to provide the service or sell the good it is a “private”, i.e. a subject who does not operate in the context of an authentically organized entrepreneurial activity, the professional-consumer-investor relationship could be compromised in favor of a peer-to-peer relationship, where the buyer could be orphan of the protection provided by the legal system for the protection of the subject perceived as weaker[9].

It is in this perspective that the hybridization between the figures of professional and consumer (the so called “prosumer”) finds light, which represents the result of that sharing economy increasingly aimed at creating a confusion in an intermediate concept that brings with it a fundamental question linked to the possibility of imposing legal obligations of behavior on the “private” person if he decides to offer a good or service on a certainly not “professional” but also non-occasional basis.

The problematic traits just mentioned are then accentuated if, as often happens, the platform includes both individuals or operators and professionals, this generating a possible error of perception in which the (supposed) consumer-investor could fall into error evaluating the identity of the counterparty and gaining trust in the platform that does not make it aware that it is moving in an area that is potentially devoid of protection.

Therefore, the need to draw a clear-cut borderline between profession and occasional or amateur activity may overlap with questions relating to safety, public order, health and hygiene and which, at the Community level, by virtue of the principle of subsidiarity , can be tackled either by individual Member States or by the Community institutions.

The complexity of the problem under analysis is such as to require clear and uniformly recognized coordinates in the European Union, while being aware of possible reservations about the possibility of dictating a single Euro-regulation that is capable of establishing, depending on the various product sectors, who is professional and who is not[10].

In particular, while maintaining the competence of the Member State to draw the boundaries of professions, including of a financial nature, the obligation of the platform is expressly foreseen to specify whether the third party offering goods, services or digital content is or is not a professional, on the basis of the statement he made on the online marketplace; whether or not consumer rights deriving from EU consumer protection legislation apply to the concluded contract; if the contract is concluded with a professional, to which professional should refer the responsibility for ensuring, in relation to the contract, the application of consumer rights deriving from Union legislation on consumer protection.

The proposed solution would seem to increase the level of awareness of consumers-investors, especially if the key information regarding the identity of the counterparty is conveyed through immediately clear graphic symbols. The path described, however, appears only partially accomplished if reference is made to the remedies deriving from any failure to comply with these obligations.

In this regard, the proposal for a New Deal directive 1 is linked to the civil consequences that derive from any unfair commercial practice which legitimizes the Member States, in the presence of similar behaviour, to resort to contractual and non-contractual remedies, recognizing, among the former, at least the right to terminate the contract, and, among the latter, at least the right to compensation for damages.

In fact, not every violation of consumers’ contractual rights, such as, for example, the omitted or inadequate identification of the counterparty, per se constitutes an unfair commercial practice, it being necessary to demonstrate that the contested behavior can significantly distort the consumer’s choice .

On the other hand, considering the remedy contents more closely, a protection by equivalent could appear more appropriate which allows the consumer, like the regulation on the guarantee of conformity, to opt between the satisfactory remedy and the releasing or indemnifying remedy.

In this way, there would be a remedial framework which would require the platform, responsible for omitted choice or identification of registered users, to make up for the lack by configuring a sort of culpa in vigilando even if applicable, following a rigorous path, to the professional and not to the private, or, alternatively, to take steps, at the request of the injured consumer-investor, to make him obtain an equivalent performance, as some platforms already do.

2. From the analysis of the companies’ activities on the market, the main contexts of use of neuromarketing can be identified.

In the advertising field, neuromarketing has been widely used to measure the effectiveness of printed or video advertising (commercials), while in the multimedia engagement sector it is possible to evaluate a film trailer or an entire feature film using neuromarketing techniques, in order to understand the trend the level of audience engagement over time and identify points in a film where, for example, there are high levels of suspense or surprise in the viewers. A similar discourse can also be extended to television programs, where neuromarketing can help predict the level of success.

Neuromarketing can then be useful for improving the ergonomics of interface devices and, consequently, the user experience. In particular, it is possible to evaluate the user’s involvement, the cognitive workload that is required to learn to use the device, the satisfaction or the stress generated by its use. In a similar sense, through neuromarketing it is possible to evaluate the involvement of video game users, identify the most interesting features and optimize the details of the games[11].

Furthermore, neuromarketing can be used to achieve a packaging design that attracts more attention, so that, for example, a customer can recognize the product more easily on a supermarket shelf. In the same sense, neuromarketing studies can optimize product placement, indicating the best positioning of the product on a supermarket shelf and the optimal placement of advertising relating to a product or a brand within a scene during a TV show.

Finally, neuromarketing techniques can be applied to perform studies in the political arena, for example by measuring voter reactions to candidates during rallies and speeches.

3. Having understood the complexity and the growing practical articulation of the panorama we are making reference to, it is now possible to concentrate the focus on the effective role and on the effective legal implications which, in this context, refer to neuromarketing.

The latter, indeed, has various legal implications and considerations that cannot be limited to privacy and data protection laws, but shall be extended to several juridical profiles, such as intellectual property, advertising regulation, and consumer protection. For example, neuromarketing research may involve the collection and analysis of sensitive personal data (i.e. brain activity, emotional responses and biometric information) that may require compliance with specific legal frameworks, such as the General Data Protection Regulation (GDPR)[12]. Additionally, neuromarketing techniques may challenge traditional advertising rules, such as those related to the use of subliminal messages, product placement, and the disclosure of sponsored content, requiring legal scrutiny to ensure compliance with consumer protection laws.

Furthermore, neuromarketing involves, on the one hand, consumer protection laws because it can influence consumer behavior and decision-making[13], and, on the other hand, intellectual property laws[14]. Finally, both ethical considerations[15] and advertising regulations[16] are involved in neuromarketing researches.

As described above, because neuromarketing often involves the collection and analysis of sensitive data, there are concerns about how this data is obtained, stored, and used, particularly with regard to obtaining consent and protecting personal information. Additionally, there may be concerns about how neuromarketing techniques are used to manipulate consumers or make false or misleading claims. Laws and regulations related to advertising, data protection, and consumer protection may all come into play in the juridical profiles of neuromarketing.

4. Neuromarketing can raise several juridical profiles, including issues related to data protection, privacy, advertising regulation, and consumer protection. For example, neuromarketing research may involve the collection and analysis of sensitive personal data, such as brain activity and emotional responses, which may require compliance with specific legal frameworks, such as the GDPR. Additionally, neuromarketing techniques may challenge traditional advertising rules, such as those related to the use of subliminal messages, product placement, and the disclosure of sponsored content, requiring legal scrutiny to ensure compliance with consumer protection laws.

Neuromarketing techniques and research are subject to EU regulation, especially concerning data protection and privacy. The GDPR applies to the collection and processing of personal data, including data obtained through neuromarketing methods such as EEG or fMRI. Researchers must obtain explicit consent from study participants, and data controllers must ensure the protection and confidentiality of the data collected. Additionally, the ePrivacy Regulation, currently under review, will regulate the use of online tracking and profiling, including through neuromarketing techniques. Finally, national advertising regulations, such as the Unfair Commercial Practices Directive, apply to neuromarketing practices to ensure that they comply with consumer protection laws.

The GDPR applies to neuromarketing research and techniques, as they often involve the collection and processing of personal data. The GDPR requires that data controllers obtain explicit and informed consent from research participants for the collection and use of their personal data. This includes data collected through neuromarketing methods such as EEG or fMRI.

Additionally, the GDPR requires that data controllers implement appropriate technical and organizational measures to ensure the security of the personal data collected. This means that neuromarketing researchers must take steps to protect the confidentiality, integrity, and availability of the data, and prevent unauthorized access, disclosure, or loss.

Finally, the GDPR grants individuals various rights, including the right to access, rectify, or erase their personal data, the right to object to the processing of their data, and the right to data portability. Neuromarketing researchers must ensure that they respect these rights and provide individuals with the means to exercise them.

Neuromarketing techniques and practices may fall under the scope of the Unfair Commercial Practices Directive (UCPD) in the EU. The UCPD is a consumer protection law that prohibits businesses from engaging in unfair and misleading commercial practices.

Neuromarketing techniques that aim to deceive or manipulate consumers could be considered unfair under the UCPD. For example, if a business uses subliminal messages or other hidden techniques to influence consumers without their knowledge or consent, this could be a breach of the UCPD. Similarly, if neuromarketing techniques are used to create a false sense of urgency or scarcity in marketing communications, this could also be considered an unfair commercial practice.

The UCPD requires that marketing communications are truthful, transparent, and do not mislead or deceive consumers. This means that neuromarketing research and techniques must be used in a way that is transparent and respects consumer rights. Additionally, national consumer protection authorities in EU member states are responsible for enforcing the UCPD, and businesses found to be in breach of the directive may face fines or other sanctions.

5. Neuromarketing techniques and research may raise several intellectual property (IP) law issues. For example, the use of EEG or fMRI to analyze brain activity and emotional responses may involve the creation of new inventions or discoveries that could be patentable. However, obtaining a patent for neuromarketing methods may be challenging because the methods may be difficult to describe and replicate, and there may be ethical concerns about their use.

Additionally, neuromarketing research may involve the use of copyrighted materials, such as images or audiovisual content, in stimuli presented to research participants. The use of copyrighted materials in research is generally allowed under the principle of fair use, but researchers must ensure that their use of the materials is transformative, non-commercial, and does not harm the rights holder’s economic interests.

Finally, neuromarketing research may involve the use of trade secrets, such as confidential information about competitors’ products or marketing strategies. Researchers must be careful not to disclose or misuse trade secrets in their research, as this could lead to legal liability.

6. Specialized research on decision-making processes confirms that people with complex assessments rarely analyze all possible variables in the case.

Legislators and interpreters need to be aware of the risks of cognitive errors that market participants may encounter. According to field scholars, these mistakes can lead to irrational attitudes[17]. It is widely recognized that disciplinary systems based solely on increasing data disclosure to address the knowledge gap of retail investors are insufficient.

In recent years, the legislature has been involved in the financial sector through the implementation of rules of conduct for investment services and activities. The legislator’s main objective has been to provide adequate protection, especially for retail clients. However, these measures do not sufficiently take into account the cognitive abilities of the recipients.

Thus, the academic question is, what are the best models for regulation?

In this regard, different approaches have been expressed in doctrine. The first of these is paternalistic. Under this approach, activities that could potentially lead to valuation errors on the part of market participants would be prohibited. In presence of particularly complex circumstances, the legislator should therefore prohibit certain actions in order to protect the interests of market participants who are jeopardized by subjective cognitive (in)abilities[18].

The weakness of this approach is that not everyone makes the same mistakes for the same reasons. Therefore, there is a risk of considering different situations in the same way[19].

In other words, on the one hand, the above approach avoids the emergence of the identified risks, but, on the other hand, it seriously limits the autonomy of individuals without there being any objective and always valid motivation.

According to a different approach, the regulator should encourage consumers to make better choices without, however, preventing them from making different decisions. This approach adopts the soft paternalism’s method[20].

In other words, the legislator should suggest to the consumer to adopt a certain behavior. However, the consumer should not be obliged to follow it, but clients should be free to take the choice considered better. This second approach is more flexible, but at the same time it reduces freedom of decision.

According to the third approach, the investor’s freedom of decision must always be preserved. Consumers should have the liberty to choose and even make their own mistakes. However, this orientation aims to develop techniques capable of warning the consumer to the risks of making wrong assessments.

These procedures go beyond mere financial education. These procedures are intended to illustrate the possible cognitive mistakes that individuals tend to make, so that once warned, consumers try to avoid them[21].

Based on these premises, it is necessary to inquire whether the European legislature has complied with one of the aforementioned orientations through Directive 2014/65/EU (MiFID II) and Regulation EU No. 600 of 2014 (MiFIR).

Where possible, the regulator has provided for a reduction in information requirements for more experienced counterparties who do not require specific protections in order to speed up market operations.

However, in such cases counterparties may make inappropriate choices due to an overestimation of their own abilities. Furthermore, experienced investors should receive the same information as retail investors. In fact, experienced investors are able to assess and exploit the content of such information because of their expertise and knowledge in the field.

This is reflected in Directive 2014/65/EU, specifically in recital no. 104. The recital no. 104 clarifies that «the financial crisis has shown limits in the ability of non-retail clients to appreciate the risk of their investments» and consequently «conduct of business rules should be enforced in respect of those investors most in need of protection», however necessary to «better calibrate the requirements applicable to different categories of clients». It is consequently appropriate to extend «some information and reporting requirements to the relationship with eligible counterparties»; notes in this regard the reference «to the safeguarding of client financial instruments and funds as well as information and reporting requirements concerning more complex financial instruments and transactions».

More precisely «the classification of municipalities and local public authorities», to exclude them «from the list of eligible counterparties and of clients who are considered to be professionals while still allowing those clients to ask for treatment as professional clients on request». Moreover, according to experts in the field, one of the factors that favor irrational decision-making by individuals is the need to make complex decisions within a short timeframe.

In such situations, the brain’s emotional management centers become activated instead of those responsible for rational control. In this regard, MiFID seems to invite investment firms to adopt more flexible attitudes than in the past in order to ensure that clients can make more thoughtful decisions.

This logic seems to be inspired by recitals 83 and 84 of the directive in question, which give the right importance to the reflection period that investors need to make thoughtful choices.

In particular, intermediaries must duly consider «the client’s need for sufficient time to read and understand it before taking an investment decision»; it is likely that client requires «more time to review information given on a complex or unfamiliar product or service, or a product or service a client has no experience with than a client considering a simpler or more familiar product or service, or where the client has relevant prior experience».

It should also be noted that companies have the option to not «immediately and at the same time» provide investors with all the information required by law. Similarly, intermediaries will not be required «to provide it either separately or by incorporating the information in a client agreement».

One of the most significant novelties in the legislation mentioned is the so-called paternalistic regulatory tools. This refers to the so-called “product intervention”, which grants Esma the authority, pursuant to Article 40 of the Mifir Regulation, to temporarily prohibit (or limit) the marketing, distribution or sale of certain financial instruments, or a type of financial activity or practice.

Moreover, these measures can only be adopted under certain conditions, one of which is the need to address «significant concern regarding the protection of investors». In other words, if it were necessary to protect clients from market risks due to any cause (and therefore, in our opinion, the obstacles being discussed), the Supervisory Authority could use its broad discretion to intervene with particularly strong powers. In any case, as suggested by the legislation, such interventions should only be carried out in extreme cases.

In fact, product governance aims to ensure coherence between the instruments issued and/or placed and the target clientele starting from the product creation phase. This extends the suitability assessment of the instrument from the sales phase to the production phase.

Particular attention is also given to the internal organization of intermediaries. On one hand, these rules allow investors to choose the instruments that align with their expectations. On the other hand, these rules establish default systems in that curtail the discretion of intermediaries.

In conclusion, it can be stated that the legislature may have identified some areas in the financial sector where a soft regulatory approach can be applied, opting for paternalistic measures in the presence of notably risky market conditions.

7. As mentioned above, the market, especially if considered in its purely financial values, presents risks that can constitute the justification basis for intervening in regulating financial activities or products: what is below a certain risk tolerability threshold is, in principle, left to the independent determination of private individuals[22], while anything exceeding these limits of tolerance represents a legitimizing cause for public intervention of a preventive and remedial nature.

From both a theoretical and a practical point of view, two significant criticalities concerning risk regulation can be identified and which can be identified in the fluidity of the concept of risk and in the inherent difficulties in identifying, assessing and managing risk.

More specifically, the presence of risk in a reference economic system can be ascertained in a more “fluid” way than what happens for market failures, since, while the latter are identified with sufficiently defined hypotheses accompanied by specific reactions regulatory frameworks, the risk does not present an equal crystallinity neither in its identification nor in the response to it.

However, in an attempt to stabilize the risk regulation process, policy makers elaborate rules and principles, which are not always able to achieve the desired goal due to the numerous difficulties associated with identifying the very notion of risk and undesirable event, with fixing of rankings of acceptable risk levels and the comparison between harmful events that are intended to be avoided.

Furthermore, it is equally complex to establish or demonstrate the etiological relationships between an activity and damage (think, for example, of market crises), and to measure the probabilities of the occurrence of the prejudicial event that one wishes to avoid. In this sense, the theories that explain ex post how the selection of the risk on which to intervene should take place are more stable, as are the theses on interest groups or on the so-called path dependency. Certainly, the way in which policy makers select risks for regulatory purposes appears more complex than it is for single individuals, given that in the decision-making process of the former both the psychological perception linked to their individual position comes into play than the interests connected to their institutional position.

In fact, generally the perception that individuals have of risk is conditioned by the familiarity that the person has with a given activity or with the natural hazard (for example, living near a nuclear power plant), by the level of control in which we are or perceive ourselves, by the nature of the consequences (the so-called dread factor), by the distribution of the negative impact, by the “availability heuristic”, i.e. by the probability that the occurrence of an event is perceived differently due to the ease with which an analogous case is remembered or imagined, from the voluntary or not voluntary exposure to the risk, and from the intuition of the benefits that can be drawn from the risk that occurs[23].

In broader terms, the risk selection process is characterized by the fact that the risks that have already occurred tend to be considered more broadly than the new ones[24], because, usually, the former are regulated through standardized forecasts, while the latter are through prior market analysis[25].

The picture is then further made “mobile” by the diversity, both internal and external to the national systems, which can be seen in the selection criteria of the risks subject to political or regulatory control[26], as well as by the heterogeneous ways in which they can be managed and assessed the same types of risk within the same country[27].

The reasons that justify such diversification in the selection and supervision of risks operated by policy makers inevitably lie in the complexity and dynamism of the process of identifying the policies to be implemented, and, concretely, could be explained in the light of the interests of the most influential economic operators . Nonetheless, a significant problem that risk analysis must address concerns the transformation, as much as possible, of uncertainties into probabilities, because an accurate (substantially scientific) strategy in determining risk would lead to a strengthening of the same mechanism (substantially political ) decision-making that is at its origin[28].

The possibility of categorizing risks in epistemological terms, based on the probabilistic knowledge of their occurrence and their consequences, however, represents an element that adds to the further difficulties that, in a stabilizing perspective, regulation presents in the elaboration of a set of assumptions precise and defined[29].

There are, in fact, at one extreme, the so-called ordinary or routine risks, which present a low statistical uncertainty or the possibility of further reducing it by means of tests (i.e. medicines, which present a relatively low catastrophic potential or a so-called “dread potential”) and whose cause-effect relationships are well known, and, at the other extreme, the so-called catastrophic risks (so-called dread risks) which have potentially irreversible consequences.

In the middle, however, are the risks that can be classified as complex-catastrophic, which, although they present conceivable and even knowable causality relationships[30], are difficult to manage, given their location within a system that presents an articulated interrelationship between heterogeneous components[31].

If, in theory, the analysis of costs and benefits seems able to guarantee the tendency to control ordinary risks[32], it is with reference to the measures to adopt in situations of uncertainty (i.e. the risks present in the financial markets, which can also assume catastrophic nature, as in the hypotheses of system collapses) that the debate, instead of posing as a solution, tends to ignite. The cause of this potential issue is, indeed, the possibility of applying numerous and varied principles (precautionary principle and resilience principle, and their variations elaborated by the analysis of costs and benefits as a “catastrophic principle”)[33] on which to structure the decision-making process and justify the adoption of specific regulatory instruments.

All the problems that characterize the ascertainment of the notion of risk are repeated, therefore, both in risk assessment (so-called risk assessment), due to the difficulty of resorting to a method that is sufficiently reliable because it is free from prejudices or biases of a commercial, political , or due to conflicts of interest, than in risk management, where it is a question of selecting the response to give, which is often a political and therefore discretionary decision.

The law then tries to make up for the described gaps by resorting to tools for stabilizing the risk decision-making process, such as presumptions (for example, that of not guilty, which accepts a type II error or a false negative, admitting that someone is innocent when in fact he may be guilty), the resilience[34] or precautionary principle[35].

In this regard, help does not come, as already noted, not even from the cost-benefit analysis which, although theoretically aimed at assisting legislators in evaluating the need to regulate, in selecting the type of risk regulation and therefore in measuring the impact presumed of the effectiveness of the response to be offered[36], it has clear limitations in risk assessment in general[37] which compromise its use as an effective method in determining systemic safety margins[38].

Although there is a conceptual separation between scientific appreciation of risk and its institutional control[39], it cannot be denied that science can contribute to offering a more or less adequate (purely rational) assessment of risk[40].

Consequently, at present, the impact of this distinction appears so limited that, in practice, numerous market operators are increasingly inclined to believe that basing the choices to be made on scientific foundations could represent an economically useful practice.

Therefore, at first, it was considered that the scientific models developed were inadequate for various reasons, due to the modest “extension” of the examples, the reduced accuracy of the extrapolations and the presence of further methodological errors.

In more recent times, however, the experts, in formulating their assessments based on neurosciences, have managed to overcome the most significant biases found in the risk assessments carried out up to then, placing a scientific limit on critical issues such as heuristic responsibility, excessive trust in the formulation of judgments based on too small models and a negligence in the conduct of probabilistic analysis.

It follows that the criticism generally addressed to scientific methods which would sin by being too limited or by not considering relevant sources of information, deeming them devoid of scientific validity, is to be considered outdated and/or surmountable.

In fact, the most modern scientific screening methods no longer tend to be suited only to measures that can be quantified more easily, but also allow embracing types of risk that are less easily measurable and which, for this reason, in the past occurred systematically more favored, because they are less easily identifiable than the others.

Thus also one of the most common techniques aimed at dealing with problems related to uncertainty, the so-called scenario analysis, has considerably improved.

The achievement of this result was possible thanks to the use of more realistic and complex models that were created with the extensive use of the most sophisticated technologies.

In this way, it was possible to demonstrate that scenario analysis also has the ability to overcome those errors which in the past had exposed it to criticism, on the one hand, due to the conditioning presence of the same cognitive biases that affect the risk perception of laymen, and, on the other hand, due to the limited range of scenarios developed by modelers.

Furthermore, the most modern scientific evaluation processes allow for the filtering of the economic and political influences that could influence them, presenting themselves “equipped” to overcome the numerous conflicts of interest that could potentially afflict them.

Lastly, a complex and all-encompassing scientific approach, facilitated, in this sense, by the use of IT and algorithmic analysis, appears fundamental for the elaboration of effective market policies which allow to grasp and overcome, as far as possible, the concretely verifiable risks . These, in fact, are profoundly different from those identified through mere assessments of probability and impact, given the practical presence of cognitive and cultural differences.

From the foregoing, it can be deduced that the main utility of risk-based analysis, as a tool that can be used to measure ex post success in risk management (both social and institutional), lies in clarifying the way in which the process is developed of decision-making thanks to the centrality attributed to the participation of the community (through the competent socio-economic operators) in the risk perception mechanisms.

And it is precisely in the centrality attributed to the activity of perception that the community has of the hazard, to the methods with which to conduct this activity and to the costs to be incurred to carry it out that neurosciences applied to market analysis find significant space.

From this perspective, neuromarketing can exert a profound influence on the ways of understanding risk and, therefore, on the factors that condition the regulatory architecture and on the forms of accountability that are connected to the latter[41]. In a nutshell, market operators can justify and reinforce the decisions taken by resorting to scientific considerations and principles of various origins, such as the precautionary principle and the analysis of costs and benefits, managing to achieve results tending to, due to the limited effectiveness of these techniques in ensuring adequate normative and functional stability, since, in reality, they are operations of a particularly political-economic nature[42].

From the perspective described, the relationship between neuromarketing and risk, seen from the perspective of a clearer understanding of market behavior – albeit linked to uncertain profiles – would represent a valid tool for understanding the behavior of consumers and investors. And this despite the possible instability linked to all the questions concerning the type of risk to be monitored, the methods of their evaluation and their understanding-regulation, which constitute as many problems to be addressed and resolved for a better understanding of the financial market and the trends of its users.

Ultimately, it seems to assume paramount importance to understand what social sentiment is, in its temporal and environmental articulations, to give a more correct response to the needs of the economic system that does not neglect the continuous consideration of the particular and fundamental role that the various banking and finances are constantly called upon to play.

8. Beyond the relevant legal profiles considered above, neuromarketing is subject to both ethical and scientific criticisms. From an ethical point of view, the main arguments concern its potential use in a manipulative key towards consumers, so as to induce them to purchase goods against their rational will.

From this perspective, if neuromarketing could be used by companies manufacturing weapons, alcohol, tobacco or products that could cause damage to public health, as well as for purposes of incorrect political propaganda or for the dissemination, especially among young , of degradation values, at the same time it is noted, on the one hand, how all marketing has the objective of convincing potential customers to buy, and, on the other, how all commercial exchanges are based on marketing[43].

From a more positive point of view, it can be assumed that neuromarketing makes it possible to understand in advance which products are destined to be successful and to concentrate investments there, avoiding waste by companies, also contributing to the reduction of the number of useless advertising messages (so called spamming). In this sense, it must be understood as a research field aimed at observing clients and not as something that can interfere with their opinions and sensations.

From a scientific point of view, neuromarketing is open to criticism because the conclusions reached so far are not yet consolidated and it is certainly not possible to identify a cerebral “buying center” or to understand precisely the mental disposition of a person to buy simply through electrodes and biometric sensors[44]. The use of neuromarketing also has practical limitations. While much progress has been made in making neurophysiological measurement equipment as noninvasive as possible, it is still impractical to use so far[45].

[1] The state of mind of the subjects can be evaluated starting from measures of neural, physiological and behavioral data (gaze pointing and facial expressions). Several technologies are often used jointly to measure different types of data and thus obtain more accurate analyses. Data collection technologies derive largely from the medical field, are standardized or in any case already consolidated. The aggregation of data and their specific use in applications related to neuromarketing, on the other hand, are usually based on proprietary technologies of companies, in several cases patented or patent pending.

[2] C.A. Almeida, E. Crescitelli, The Contribution of Neuromarketing to the Study of Consumer behavior, in Brazilian Business Rev., 2014, p. 1 ff.

[3] Researchers use technologies such as ElectroEncephalography (EEG) to measure electrical activity related to each area of the brain, functional Magnetic Resonance Imaging (fMRI) to measure blood oxygenation in various brain regions related to activity neuronal, sensors to measure the variations of a physiological variable (heartbeat, respiratory rate, galvanic response of the skin), and/or eye-tracking and facial expression detection systems, for understand the reasons that push subjects to opt for a certain choice, and which part of the brain is correlated with this choice. The first experiments in the use of fMRI applied to marketing date back to the late 1990s and were the work of Gerald Zaltman of the Harvard Business School.

[4] See, European Commission, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions “A Digital Decade for children and youth: the new European strategy for a better internet for kids (BIK+)”, Bruxelles, 11.5.2022 COM (2022) 212 final, which, considering «Children as active digital consumers», affirms that they «[…] are now systematically exposed to inappropriate content and commercial practices. Research on the long-term neurologic impact on children of methods used for commercial purposes such as persuasive design, for example games of chance mechanisms such as ‘loot boxes, is still needed».

[5] See, for further details, N. Katyal, Disruptive Technologies and the Law, in 102 Georgetown Law Journ., , 2014, p. 1685 ff.

[6] See C. Koopman, M. Mitchell, A. Thierer, The Sharing Economy and Consumer Protection Regulation – The Case for Policy Change, in 2 Journal of Business Entrepreneurship and Law, 2015, p. 520 ff.

[7] European Commission, Guidance on the Implementation/Application of Directive 2005/29/EU on Unfair Commercial Practices – SWD(2016) 163 final, Brussels, 25.5.2016, available at

[8] See infra § 3.

[9] See, for further details, G. Alpa, Che cos’è il diritto privato?, Roma-Bari, 2014, p. 14.

[10] The New Deal Communication and the consequent proposal for a New Deal directive 1 aimed at amending the directive on unfair terms in contracts stipulated with consumers, the directive on consumer protection in the indication of the prices of products offered to consumers, the directive on unfair business-to-consumer commercial practices in the internal market and the directive on consumer rights, appear to be moving in the right direction by ensuring better enforcement of EU consumer protection rules and their adaptation in light of the digital evolution

[11] It is possible to fine-tune the difficulty so that a game is challenging, but not overly difficult.

[12] See infra § 3.

[13] Thus, they must comply with consumer protection laws, which prohibit deceptive and unfair practices.

[14] Neuromarketing research may involve the use of patented or copyrighted materials, such as brain imaging technologies or marketing materials. Thus, it must comply with applicable intellectual property laws.

[15] Neuromarketing research raises relevant ethical profiles, such as obtaining informed consent from research participants, ensuring their safety, and avoiding discriminatory practices.

[16] Neuromarketing techniques may influence advertising practices and messages, and therefore they must comply with relative regulations, such as those related to the accuracy and truthfulness of advertising claims.

[17] See, for all, A. Bastardi, E. Shafir, On the Pursuit and Misuse of Useless Information, in Journal of Personality and social Psychology, vol. 75, no. 1, 1998; D.G. Macgregor, P. Slovic, D. Dreman, M. Berry, Imagery, Affect, and Financial Judgment, in 1 The Journal of Psychology and Financial Markets, 2, 2000, p. 104 ff.

[18] R. Baldwin, M. Cave, Understanding Regulation. Theory, Strategy, and Practice, Oxford, 2012, p. 106 ff.

[19] C. Jolls, C.R. Sunstein, Debiasing through Law, in 35 Journal of Legal Studies, 2004, p. 199 et ff.

[20] R.H. Thaler, C.R. Sunstein, Nudge – The Final Edition, New York, NY, 2021, passim.

[21] N. Moloney, Financial Services and Markets, in The Oxford handbook of regulation, edited by R. Baldwin, M. Cave, and M. Lodge, New York-Oxford-Chicago, 2010, p. 437 ff.

[22] See, for further analysis of the so called individualisation of risk governance, J. Black, The Role of Risk in Regulatory Processes, in The Oxford Handbook of Regulation, edited by R. Baldwin, M. Cave and M. Lodge, Oxford, 2010, p. 302 ff.

[23] See, for a law and economic approach, E.A. Posner, Law and the Emotions, in 89 Georgetown Law Journ., 2001, p. 1977 ff.

[24] C. Hood, H. Rothstein, R. Baldwin, The Government of Risk: Understanding Risk Regulation Regimes, Oxford, 2001, p. 136, dove gli A. notano che «Where concentrated business interests were in the field, the position they could be expected to prefer over regime content was normally adopted, whatever the logic of general opinion responsiveness and minimum feasible response might suggest».

[25] J. Black, The Role of Risk in Regulatory Processes, in The Oxford Handbook of Regulation, cit., p. 312.

[26] E. Fisher, Framing Risk Regulation: A Critical Reflection,in European Journal of Risk Regulation, 2013, p. 125 ff.

[27] C. Hood, H. Rothstein, R. Baldwin, The Government of Risk: Understanding Risk Regulation Regimes, cit., p. 20 ff.

[28] See J. Black, The Role of Risk in Regulatory Processes, in The Oxford Handbook of Regulation, cit., p. 314.

[29] A. Klinke, O. Renn, Precautionary Principle and Discursive Strategies: Classifying and Managing Risks, in 4 Journ. of Risk Research, 2001, p. 159 ff.

[30] Consider, for example, systemic financial collapses.

[31] See C. Perrow, Normal Accidents: Living with High Risk Technologies, New York, 1984, p. 15 ff.

[32] J. Black, The Role of Risk in Regulatory Processes, in The Oxford Handbook of Regulation, cit., p. 318 ff.

[33] See infra.

[34] The awareness of the difficulties related to the identification of “stable” risks inspired the affirmation of the principle of resilience, to be understood as the need to experiment and make mistakes, and, thus, to oppose, resistance to systems that do not operate correctly. Resilience includes those controls that, in engineering terms, are called “redundancies”, i.e. that start to operate when other mechanisms have failed. In practice, public policies often include typical aspects of resilience, as happens, for example, in financial regulation, where banks are generally required to set aside a given capital to cover any losses. Indeed, it should be noted that, although the attention of regulators is currently more focused on crisis management at both a national and transnational level, this profile has been neglected for a long time, mainly because it appeared (and still is today) it is very difficult to identify both the ways in which to ensure the adoption of decisions, common and operating on an international level, to proceed with the possible rescue of banking systems in crisis, and the subject responsible for their coordination. See A.B. Wildavsky, Searching for Safety, London, 2004, p. 77 ss.; J. Black, The Role of Risk in Regulatory Processes, in The Oxford Handbook of Regulation, cit., p. 321 ss.

[35] It is no coincidence that in recent decades, the precautionary principle has become central, for example, in the European Union’s risk regulation system.

[36] N. Stern, The Economics of Climate Changes, Cambridge, 2007, p. 25 ff. e p. 161 ff.; J. Staum, Counterparty Contagion in Context: Contributions to Systemic Risk, in Handbook of Systemic Risk, Cambridge, 2013, p. 512 ff.

[37] For further details J. Black, The Role of Risk in Regulatory Processes, in The Oxford Handbook of Regulation, cit., p. 322.

[38] C.S. Sunstein, Laws of Fear: Beyond the Precautionary Principle, Cambridge, 2005, p. 35 ff.; J. Black, The Role of Risk in Regulatory Processes, in The Oxford Handbook of Regulation, cit., p. 323 ff.

[39] See O. Renn, Concepts of Risk: A Classification, in Social Theories of Risk, edited by S. Kirmsky and G. Golding, Westport, CT, 1992, p. 53 ff.

[40] See P. Slovic, Perception of Risk, in Science, 236, 1987, p. 280 ff.; S. Jasanoff, Technologies of Humility: Citizen Participation in Governing Science, in 41 Minerva, 2003, p. 223 ff.; Better Regulation Commission, Public Risk: the Next Frontier for Better Regulation, 2008, available at

[41] The recent financial crises clearly highlight the need to provide both for the regulators – although l they are independent – and for all the market operators involved, certain levels of accountability that attempt to ensure more correctness in their operations.

[42] For further details, A. Supiot, Homo juridicus. Essai sur la fonction anthropologique du droit, Paris, 2005, p. 12 ff.

[43] See M. Lindstrom, Buyology Truth and Lies About Why We Buy, Doubleday, 2008.

[44] Although fMRI has made it possible to make much progress in understanding the functioning of the brain, it is still difficult to use even for diagnostic purposes, for example because the studies have a statistical value, and therefore may not reflect the cases of single individuals. Similarly, it is not said that, for each area of the brain, the activity is exclusively attributable to a specific type of stimulus.

[45] In the specific case of fMRI the subject is inside the equipment and must remain almost motionless, but even using the EEG and biometric sensors, however, the subject must usually wear a headset, an elastic band or sensors on the limbs which limit the movements.


* Associate Professor of Private Law and International Business Law at the University of Florence School of Law

** Full Professor of Economic Law at the University “Parthenope” of Naples

Though the considerations expressed in the paper are shared by both authors. Ettore M. Lombardi is the Author of Paragraphs 1-2-3-4-5-7-8 is. Diego Rossano is the Author of Paragraph 6 is.



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