Tuesday, September 23, 2014
This is the ninth in a series of posts that are part of a virtual symposium on the new book by Omri Ben-Shahar and Carl E. Schneider, More Than You Wanted to Know: The Failure of Mandated Disclosure. Biographies for the second week's contributors can be found here. The authors' introduction to the symposium can be found here.
Daniel Schwarcz is an Associate Professor of Law and the Solly Robins Distinguished Research Fellow at the University of Minnesota Law School and he comes to us fresh form his star turn on NPR's Planet Money.
Note: This response draws from my article, Transparently Opaque: Understanding the Lack of Transparency in Insurance Consumer Protection, 61 UCLA Law Review 394 (2014)
More Than You Wanted to Know is clearly an important, persuasive, and meticulously researched book. Its core claim is that mandatory disclosure is an oft-used regulatory technique that has repeatedly failed to help individuals make better decisions in complex and unfamiliar settings. More controversially, Ben-Shahar and Schneider argue that this failing of mandatory disclosure is largely insurmountable, because most people (i) have little reason to read disclosed information in the first place, (ii) cannot understand such information even when they want to, and (iii) are unable to translate such information into better decision-making. Although I ultimately believe that Ben-Shahar and Schneider are overly pessimistic about the capacity of modernized disclosures (such as the mortgage disclosure composed by the Consumer Financial Protection Bureau) to improve decision-making, their skepticism on this front is both reasonable and persuasively defended.
Nonetheless, More Than You Wanted to Know suffers from an important limitation, in my view. Until its final few pages, the book almost entirely ignores the possibility that mandatory disclosures may help to achieve regulatory objectives in ways that do not depend on their ability to directly help individuals make better decisions. In fact, most of the book seems to have been written on the assumption that mandatory disclosure can only work if disclosees generally read, understand, and use disclosures. (Ben-Shahar and Schneider explicitly say as much on page 34). But disclosures that make relevant information more readily available to the public – either by requiring the production of new information or by making existing information more easily and cheaply accessible – may deter over-reaching by firms, improve the accuracy of prices, or indirectly facilitate more informed decision-making even if they do not directly improve decision-making among most potential recipients of disclosure.
First, mandatory disclosure can discourage firms from embracing potentially objectionable strategies in the first place, because doing so raises the risk of substantial reputational or regulatory consequences. For instance, Ben-Shahar and Schneider criticize hygiene-grade requirements for restaurants on the basis that they do not empower consumers to choose less risky eating establishments. But this claim is not necessarily inconsistent with evidence suggesting that such grades reduce food-borne illness by inducing food establishments to take more care (though the evidence here is indeed mixed). This is hardly the only instance where Ben-Shahar and Schneider criticize disclosure strategies that can have important benefits by enhancing accountability and deterring misconduct, rather than by helping individuals make better decisions. A non-exclusive list of additional examples includes mandatory disclosure of (i) campus crime, (ii) graduation and placement statistics, and (iii) hospital report cards. Further examples of mandatory disclosures that can deter overreaching or misconduct, but which Ben-Shahar and Schneider do not extensively discuss, include mandatory disclosure in the contexts of (i) environmental regulation, (ii) campaign finance law, and (iii) mortgage discrimination.
Second, mandatory disclosure that increases the public accessibility of relevant information can improve the accuracy of prices. This, of course, is the primary rationale for mandatory disclosure in securities markets. Thus, when Ben-Shahar and Schneider criticize mandatory disclosure in securities regulation because most investors don’t read prospectuses, they miss their mark. As above, mandatory disclosure in securities regulation is important even though most investors do not read or understand prospectuses because information contained therein impacts the price of securities due to trading by market arbitragers. Although the link between mandatory disclosure and price accuracy is best illustrated in the context of securities regulation, other examples abound. For instance, mandates requiring home-sellers to disclose relevant information in response to standardized forms may help ensure that the price of a property more accurately reflects its market value.
Third, mandatory disclosure can improve individual decision-making indirectly, by empowering consultants, information intermediaries, and computer programs to provide tailored advice to individuals. Thus, the true promise of “smart disclosure” is not that computer programs will provide relevant disclosures to specific consumers (which is how Ben-Shahar and Schneider describe it), but that they will provide precisely the type of personalized advice that Ben-Shahar and Schneider acknowledge to be so useful. Mandatory disclosure can play an especially vital role in facilitating smart disclosure by making standardized, computer-readable data publicly available to potential developers of these tools. This can dramatically decrease costs for those who might develop smart disclosure tools – such as entrepreneurs and public interest groups – and thus enhance competition and market entry in this domain.
In contrast to their meticulous and empirically-grounded (though perhaps unduly pessimistic) criticisms of disclosures’ capacity to directly improve individual decision-making, Ben-Shahar and Schneider’s responses to the above points are unconvincing and under-developed (as reflected by the fact that they only emerge in the book’s final ten pages). Their primary retort is that mandatory disclosure is not needed to make information more broadly available to the public, because those who would make use of such information can acquire it without the need for government mandates. But this largely misses the point, which is that mandatory disclosure can make relevant information more easily and cheaply available to market intermediaries, academics, journalists, lawmakers, public interest groups, and developers of “smart disclosure” tools. This, in turn, can enhance the capacity of these actors to police against market misconduct, improve market efficiency, and/or provide more informed personalized advice. To be sure, the magnitude of these effects is an empirical question that is context-dependent. But there are good reasons to believe that Ben-Shahar and Schneider’s pessimism in this domain is excessive. In any event, in contrast to most of the book’s claims, this pessimism is surely not empirically grounded, as illustrated by the absence of any supporting citations for the arguments they develop on this front in the book’s final chapter.
Ben-Shahar and Schneider also suggest at several points that there is a tension between using mandatory disclosure to enhance the public availability of information and using it to directly improve individuals’ decision-making. Not so. Mandatory disclosures that are principally aimed at enhancing accountability, empowering market intermediaries, or improving market efficiency can and should be distinct from mandatory disclosures that are meant to repackage and summarize information so as to improve decision-making. This point is illustrated by the coexistence of full and summary securities prospectuses, or by the coexistence of summary disclosures of credit card terms and a public database containing the complete contracts of all credit card providers.
Ultimately, the capacity of mandatory disclosures to increase accountability, improve market efficiency, or indirectly enhance the accuracy of personalized advice is substantially dependent on context. So too, in my view, is the capacity of mandatory disclosure to improve decision-making. For instance, my reading of the evidence on nutritional labels is that they can indeed substantially improve consumer decision-making, even if this occurs less often or consistently than would be ideal. For these reasons, I believe that Ben-Shahar and Schneider go too far in condemning mandatory disclosure as a regulatory tool in virtually all settings. Nonetheless, the evidence they canvass and the arguments they develop provide valuable insight both as to the limits of mandatory disclosure and to the difficulties involved in designing and implementing them effectively.
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Ben-Shahar & Schneider Symposium, Part VIII: Florencia Marotta-Wurgler, Even More Thank You Wanted To Know
This is the eighth in a series of posts that are part of a virtual symposium on the new book by Omri Ben-Shahar and Carl E. Schneider, More Than You Wanted to Know: The Failure of Mandated Disclosure. Biographies for the second week's contributors can be found here. The authors' introduction to the symposium can be found here.
Florencia Marotta-Wurgler is a professor of law at New York University School of Law.
This review of Professors Ben-Shahar and Schneider More Than You Wanted to Know, is based on my earlier review, titled “Even More Thank You Wanted To Know About the Failures of Mandated Disclosure, which is forthcoming in the Jerusalem Review of Legal Studies.
The book offers an important and compelling critique of the many forms of disclosure regulation and explain why the problems cannot be fixed. According to the authors, successful disclosure regulation depends on the simultaneous success of too many factors. Disclosers must reveal the right type of information, in the right format, and at the right time; and, of course, individuals must read, understand, and use this information in a way that enables them to make the right decision. The authors claim that this just doesn’t happen. Somewhere along the line, the process breaks down. For example, evidence shows that individuals don’t read fine print and, even if they wanted to, they wouldn’t be able to read it because disclosures are usually long, complex, and hard to understand.
Instead of reading disclosures and making choices, the authors argue, what consumers really want is advice—in the form of ratings, rankings, scores, and the like. They observe that current opinion services, such as TripAdvisor and the reviews in Amazon.com, don’t need disclosure regulation because they function properly on their own. (The authors note that consultants do this, too, but that they are unreliable.) They conclude by urging regulators to quit insisting on the failed recipe of mandatory disclosure and resist the urge to replace it with something else. This will leave much-needed room for alternative mechanisms to emerge that can more effectively address specific problems associated with imperfect information.
While I certainly agree with the main premise that disclosure regulation in its current form is of almost no value (see here and here), I must push back on the claim that information intermediaries function properly on their own to supply the right type of information that consumers want. [In the full review, I also offer new evidence in support of the authors’ claim that disclosures tend to get worse over time using an analysis of a sample of consumer standard form contracts that reveals changes in contract and disclosure practices from 2003 until 2010. While sellers broadly increased the disclosure of their contracts over these years, offsetting this improvement is a significant increase in the length of contracts, an increase in bias against consumers, and no improvement in readability. Indeed, contracts that became more accessible have a particular tendency to grow longer and more one-sided.]
On Ratings, Rankings, and Information Intermediaries.
After enumerating all the problems with disclosure regulation. Ben-Shahar and Schneider posit that information intermediaries are able to supply the type of information that consumers want and need (“ratings, rankings, scores, grades, labels, and reviews”) without the need for mandatory disclosure. While this last point might be debatable—especially when it comes to “use pattern” disclosures—relying on advice, ratings and rankings to inform individuals about fine print suffers from a number of the same maladies the authors identify with mandatory disclosure. In particular, they assume that people will care enough to actively seek them out, understand them and use them wisely; that they will convey the right type of information, and that they will be produced well and not suffer from some of the problems and conflicts that trouble disclosure regulation.
Evidence suggests, like in disclosure regimes, that these conditions are rarely met. Take “user generated” rankings and reviews, such as Amazon.com (products), Expedia (hotels), and Yelp (merchants), which the authors use examples of well-functioning information intermediaries. An encouraging fact is that positive ratings affect sales, suggesting that consumers rely on them in making decisions about which goods or services to buy. This is a clear improvement over mandatory disclosure and enough to pursue further consideration. The problem, though, is that user-generated reviews can by systematically biased, noisy, and thus not very reliable. For example, there is evidence that reviews tend to become increasingly negative as ratings environments mature. Two experiments also show that reviewers tend to adjust their evaluations based on reviews previously written by others. There is the problem of shill reviews. These behaviors introduce noise and bias and offer no panacea or an obvious improvement in consumer decision-making—the end objective here—over mandatory disclosure. Moreover, many reviews and rankings are used for one-dimensional decisions, such as whether to eat a particular restaurant or read a particular book, and might not convey much information about the quality or terms of the fine print.
On the other hand, expert-generated reports, like those in Consumer Reports, can get around some of the problems of user-generated reviews. Experts test and experience the good or service and pertinent standard form contract terms, and may also report some contract features (such as warranties) for big-ticket items. Specialized intermediaries, such as PrivacyChoice, The Fine Print Project, and FairContracts.org offer summarized reviews of the content of disclosures. Indeed, there are sites and blogs that seek to simplify fine print disclosures to consumers, including the terms in online privacy policies. Individuals who seek the opinion of experts might fare better in becoming informed about the nature of the goods and services they consider, including the fine print. Of course, these general evaluations would not help individuals in selecting products and services whose desirability depends on individual use patterns.
Unfortunately, even when (good) opinions data on fine print exist, there are still weak links in the chain of circumstances required for accurate consumer decision-making articulated by Ben-Shahar and Schneider. In particular, just as individuals fail to read fine print when it is disclosed, they do not seek out such specialized information intermediaries. In a study on consumer shopping for software online, for instance, only 0.1% of consumers accessed a software product review while shopping for software (which is essentially the same rate at which shoppers read disclosed end-user license agreements). Also, in a sample of over 48,000 shopping visits, not a single shopper visited any of the specialized sites that discuss contract terms, including EULAs and other fine print. The fact that millions of people access Amazon.com and TripAdvisor daily is not a defense here; this discussion concerns the likelihood that consumers will seek out advice on fine print, not the overall product itself.
This is not surprising. As the authors suggest in their book, this behavior might be perfectly rational. It might also be perfectly rational for reviewers to ignore the fine print. After all, it seems unlikely than an arbitration clause, or a restriction on reverse engineering, will affect an individual’s purchase decision. Whether and what to do about the terms that are ignored but which might affect substantive rights of individuals later is an important question that needs to be addressed, especially given the current challenges to class action litigation. What seems clear is that, just as disclosure, opinion ratings, while superior in some respects, might not offer a fully satisfying solution to this problem. Or at least not yet.
Overall, the book offers a comprehensive and compelling indictment against mandatory disclosure, the most popular regulatory technique in consumer protection. It is a terrific read and a much-needed contribution to existing debates on consumer protection. While there is no perfect solution to the problems of fine print, Ben-Shahar and Schneider offer new and thought-provoking ideas to move the debate forward.
Monday, September 22, 2014
We interrupt our virtual symposium on the new book by Omri Ben-Shahar and Carl E. Schneider, More Than You Wanted to Know: The Failure of Mandated Disclosure, to bring you this news story about the dangers of non-disclosure. Sunday's New York Times, features a front-page article about people who discover that doctors unknown to them assisted in their surgeries. The doctors are sometimes out of network, and the costs can be astronomical.
For example, the Times story begins by telling of surgery performed on Peter Dreier. Most of the bills that followed were expected, but there was a $117,000 bill from an "assistant surgeon" of whose existence Dreier claims to have been unaware. It sounds like Mr. Dreier was the rara avis who actually took advantage of medical disclosure forms to eductate himself about his options and the costs. And so he was blindsided by the six-digit bill from an apparently undisclosed doctor.
[Just an aside here. $117,000 for three hours of work makes no sense in any context. It makes far less in this context, in which the "primary surgeon" accepted a negotiated fee of $6200.]
The Times also reports on Patricia Kaufman, who received bills totalling $250,000 from two plastic surgeons who sewed up an incision. She had had previous surgeries in which residents sewed up the incisions at a much lower cost. She and her husband claim that they had no idea who these doctors were until the bills started showing up.
According to the Times, insurance companies often pay the bills rather than fight, encouraging the practice. Some states, including New York, are now seeking to regulate such "drive by" surgeries. It is not clear why the insurance companies would pay for services that had not been disclosed in advance. Perhaps this is grist to the anti-disclosurite mill after all, if the out-of-network surgeons were in fact disclosed somehow in the stack of informed consent papers.
This is the seventh in a series of posts that are part of a virtual symposium on the new book by Omri Ben-Shahar and Carl E. Schneider, More Than You Wanted to Know: The Failure of Mandated Disclosure. Biographies for the second week's contributors can be found here. The authors' introduction to the symposium can be found here.
Nancy Kim is the ProFlowers Distinguished Professor of Internet Studies and Professor of Law at the California Western School of Law and also a Visiting Professor at the Rady School of Management at the University of California, San Diego.
Omri Ben-Shahar and Carl E. Schneider ‘s book, More Than You Wanted to Know: The Failure of Mandated Disclosure (Princeton, 2014), canvasses a wide variety of disclosures and concludes that as a policy, mandated disclosure is a spectacular failure. Businesses spend resources drafting disclosures that consumers fail to read. Furthermore, these ubiquitous disclosures may end up harming consumers by providing a protective shield around businesses. Ben-Shahar and Schneider explain why consumers fail to read, why politicians prefer it as a regulatory scheme, and why they believe that efforts to fix disclosure are destined to fail.
While I agree with much of what the authors say about disclosure, I disagree that disclosure in an abject failure in all cases or that disclosure as a regulatory policy is destined to fail. What they call “disclosure” includes all types of information – contracts, prescription labels, credit card statements, food labels - in different type of situations conveyed in different ways. They sweep too much under the umbrella of “mandated disclosure,” and so paint a picture of a failed regulatory approach with too broad a brush. In some cases, consumer have benefitted from streamlined presentation, plain English and limited information. Studies indicate that there are ways to get consumers to read disclosures, such as by making notices shorter, changing the presentation of terms, and allowing them to alter or select terms. The authors acknowledge that in some cases disclosures has proven effective but don’t delve into details. Rather than exploring how to make disclosure more effective, the authors say disclosure cannot be made effective.
Ben-Shahar and Schneider argue that mandated disclosure is a “failure,” and as proof of that, they offer examples of the failure of consumers to read and understand disclosure. Putting aside for a moment the issue of whether disclosures could be presented in a more noticeable and understandable way, I’m skeptical that the failure of consumer reading is the best way to measure the efficacy of mandated disclosure. The obligation to disclose, the burdensome task of determining what information should be disclosed and the drafting and disseminating of that information, likely have benefits apart from whether consumers read the terms. The requirement of disclosure may deter or restrain companies from acting in socially harmful ways. It may also force companies to reconsider the way they do business. Government mandated disclosures concerning the processing of foods and food ingredients have resulted in businesses eliminating certain practices (e.g. caging chickens) or ingredients (e.g. hydrogenated fats). Thus, the process of disclosing may itself have positive regulatory effects on the business not because the consumer has policed the terms, but because the fear of disclosing has forced the company to self-regulate. True, disclosure may not always work, but it’s unhelpful to make such broad generalizations about mandated disclosure’s efficacy without honing in on a particular industry or type of discloser. Some disclosure works in some cases and more research should be conducted on how to make certain disclosures more effective. Lengthy technical jargon and legalese typically fails, but visual imagery, text boxes and concise language may work at least for some products and services. There is a difference between a disclosure that provides consumers with information on a medical procedure and one that seeks to bind a customer to contractual obligations. [In an example of an effective mandated disclosure, I refrained from purchasing this nice baking tin when I saw this notice at right:
The authors provide many useful examples of failed disclosure mandates but they provide no alternatives. They argue that mandated disclosure “accomplishes so little that eliminating it would deny few people anything.” In essence, what they mean when they argue that mandated disclosure should be abolished is that the burdens that mandated disclosure places upon businesses and other disclosing entities (such as doctors) should be borne instead by legislators, regulators, the judiciary and consumers themselves.
The problem with this approach is that businesses are typically in the best position to know what information needs to be disclosed and often in the best position to bear the costs of disclosure. Consumers may be able to get information about a product or service through online reviews, for example, but that puts the burden on consumers to sift through the reviews and assess their veracity.
Ben-Shahar and Schneider are unconcerned about the societal ramifications of doing away with mandated disclosure, but there could be serious consequences for both businesses and consumers. The problems of adequate disclosure (what, how much, when) that Ben-Shahar and Schneider delve into in great detail don’t go away because disclosure is not mandated. For example, let’s assume that there is a miniscule chance of a serious side effect from taking a prescribed drug. The drug has great benefits except in rare instances. If the doctor prescribes the drug to the patient without disclosing the potential for this side effect, and the patient suffers greatly, what would happen? Neither the physician nor the company has violated a mandated disclosure requirement but that doesn’t mean they won’t be held liable for injuries to this patient resulting from the drug. If the patient sues, the doctor and/or the drug company are subject to the ex-post analysis of a jury comprised of consumers. The focus then is on the suffering of the sympathetic plaintiff and who should bear the costs of the suffering, and not the adequacy of the disclosure. Is this a better net result for society than the current system of disclosure? Or do the authors intend that “no mandated disclosure” should mean no cause of action and no remedy for the injured plaintiff? To put it bluntly, is a “no-mandated disclosure” regime a free pass for businesses? Or is it a green light for class action attorneys? Neither sounds appealing.
More Than You Wanted to Know is a powerful argument against mandated disclosures. Ben-Shahar and Schneider exhaustively and effectively chronicle the problems and significant costs of mandated disclosure. The costs of getting rid of mandated disclosure, however, may be even greater.
This week we will continue our virtual symposium on the new book by Omri Ben-Shahar and Carl E. Schneider, More Than You Wanted to Know: The Failure of Mandated Disclosure.
Last week we had six contributions:
This week, the symposium will include contributions by the contracts law scholars introduced below:
Nancy Kim is the ProFlowers Distinguished Professor of Internet Studies and Professor of Law at the California Western School of Law and also a Visiting Professor at the Rady School of Management at the University of California, San Diego. Prior to joining the faculty at California Western in 2004, Professor Kim was Vice President of Business and Legal Affairs of a multinational software and services company. She has worked in business and legal capacities for several Bay Area technology companies and was an associate in the corporate law departments at Heller, Ehrman, White & McAuliffe in San Francisco and Gunderson, Dettmer in Menlo Park.
Professor Kim currently serves as Chair of the section on Contracts and as a member of the executive committee of the section on Commercial and Related Consumer Law of the American Association of Law Schools. She is a contributing editor to the ContractsProf Blog, the official blog for the AALS Section on Contracts. Her scholarly interests focus on culture and the law, contracts, women and the law, and technology. She is the author of WRAP CONTRACTS: FOUNDATIONS AND RAMIFICATIONS (Oxford University Press, 2013) which examines how contracts control consumer behavior, especially online, and what this means for society. Professor Kim is an elected member of the American Law Institute.
Some of her scholarly papers can be found on SSRN here.
Florencia Marotta-Wurgler is a professor of law at New York University School of Law. Her teaching and research interests are contracts, consumer privacy, electronic commerce, and law and economics. Her published research has addressed various problems associated with standard form contract online, such as the effectiveness of disclosure regimes, delayed presentation of terms, and whether people read the fine print. Her current projects focus on empirical analyses on consumer privacy policies online. Professor Marotta-Wurgler has testified before the U.S. Senate Committee on Commerce, Science, and Transportation and is an associate reporter of the American Law Institute's Third Restatement of the Law of Consumer Contracts.
Some of her scholarly papers can be found here.
Daniel Schwarcz is an Associate Professor of Law and the Solly Robins Distinguished Research Fellow at the University of Minnesota Law School. Professor Schwarcz's research primarily focuses on consumer protection and regulation in property/casualty and health insurance markets. His articles have been published, or accepted for publication, in the University of Chicago Law Review, Virginia Law Review, Minnesota Law Review, North Carolina Law Review, William and Mary Law Review, and Tulane Law Review. Additionally, he is the editor of a book entitled, The Law and Economics of Insurance and recently joined the casebook, Abraham's Insurance Law and Regulation, which has been used as the principal text in courses on insurance law in more than 100 American law schools. In 2011, his article, "Reevaluating Standardized Insurance Policies," received the Liberty Mutual Prize for an exceptional article on insurance law and regulation.
Professor Schwarcz teaches insurance law, health care regulation and finance, contract law, and commercial law. He was named the Stanley V. Kinyon Overall Teacher of the Year for 2011-2012 and the Stanley V. Kinyon Tenure-Track Teacher of the Year for 2007-2008. Additionally, he serves as a Funded Consumer Representative to the National Association of Insurance Commissioners and has served as an expert witness in multiple insurance-related disputes.
Links to Professor Schwarcz's academic papers can be found on SSRN here.
Jeff Sovern is a Professor of Law at St. John’s University in New York City where he teaches Consumer Protection, among other subjects. The New York Times has called him "an expert in consumer law," a statement echoed by the Chicago Tribune, and Mother Jones. He is a co-coordinator of the Consumer Law and Policy Blog, and the co-editor of the Consumer Law Abstracts Journal for the Social Science Research Network. He co-authored a casebook titled Consumer Law: Cases and Materials (4d ed. 2013 West) with Professors John A. Spanogle, Ralph J. Rohner, Dee Pridgen, and Christopher Peterson, with whom he also co-edited Selected Consumer Statutes(2007, 2009, 2011, and 2013 editions). He has published numerous op-eds, including in The New York Times (here and here). He has authored many law review articles on consumer law issues, one of which was listed in Martha Minow’s Archetypal Legal Scholarship: A Field Guide, 63 J. Legal Education 65 (2013) as an example of archetypal policy analysis. The American Council on Consumer Interests awarded Professor Sovern the Russell A. Dixon Prize in 2002 and the 2010 Applied Consumer Economics Award. Sovern has also spoken at many conferences. His full bio can be found here.
David C. Vladeck is a Professor of Law at Georgetown University Law Center, where he teaches federal courts, civil procedure, administrative law, and a seminar on First Amendment litigation. Professor Vladeck recently returned to the law school after serving for nearly four years as the Director of the Federal Trade Commission’s Bureau of Consumer Protection. At the FTC, he supervised the Bureau’s more than 430 lawyers, investigators, paralegals and support staff in carrying out the Bureau’s work to protect consumers from unfair, deceptive or fraudulent practices. Before joining the law school faculty full-time in 2002, Professor Vladeck spent over 25 years with Public Citizen Litigation Group, a nationally-prominent public interest law firm, handling and supervising a complex litigation. He has briefed and argued a number of cases before the U.S. Supreme Court and more than sixty cases before federal courts of appeal and state courts of last resort. He is a Senior Fellow of the Administrative Conference of the United States, and an elected member of the American Law Institute. He also serves on the boards of the Natural Resources Defense Council and the National Consumers Law Center. Professor Vladeck frequently testifies before Congress and writes on administrative law, preemption, First Amendment, and access to justice issues.
A list of Professor Vladeck's publications can be found here.
At the end of the week, our authors will return to respond to their critics, and there may be some surprise appearances by others as well, so stay tuned!
Thursday, September 18, 2014
This is the sixth in a series of posts that are part of a virtual symposium on the new book by Omri Ben-Shahar and Carl E. Schneider, More Than You Wanted to Know: The Failure of Mandated Disclosure. Biographies for the first week's contributors can be found here. The authors' introduction to the symposium can be found here.
Lauren Willis is Professor of Law at the Loyola Law School, Los Angeles.
More than You Wanted to Know: The Good, The Bad, and The Ugly
The Good: Omri Ben-Shahar and Carl Schneider’s critique of the ability of mandated disclosure to directly equip consumers to make good complex choices in today’s marketplace is excellent. Consumers usually do not read, or if they read they usually do not understand, or if they understand they usually fail to use or even misuse mandated disclosures.
Moreover, many disclosures do affirmative harm. As I have explained elsewhere, disclosures are a sword with which disclosers disarm consumers into believing that the law protects them more than it does and a shield with which disclosers deflect consumer complaints when the transaction causes harm. Disclosures almost certainly impose regulatory opportunity costs, giving policymakers and consumer advocates illusory gains to point to when they go back to their constituencies. The costs of mandated disclosures are in many instances high, and those costs must be confronted.
While the explanations and arguments in the book are not novel, they are made more accessible to non-academic audiences than prior treatments and are put together in such a way that the sum is greater than its parts. Several passages in the book brilliantly capture points others have made, but not nearly so well. For example, at 74:
Few things make you feel less autonomous than studying a choice that hourly becomes more convoluted and confusing. You feel even less autonomous on realizing that you may never understand. And less autonomous still when you realize that the choice is essentially illusory. The kind of control over life’s choices that disclosurism seems to promise is an illusion.
The authors’ use of the choice between a treatment with a low chance of success but a low risk of death and a treatment with a high chance of success and a high risk of death to illuminate tradeoff difficulty (at 109) is very effective. Their explanation of the problem with anecdotal evidence – “[t]rouble stories, then, may tell us something about the numerator but not the denominator” (at 142) – is ingenious. And their photo of the 32-foot iTunes “scroll” perfectly captures the absurdity of this disclosure for a 99- cent transaction.
The book favorably and copiously cites my work, so perhaps I ought not criticize, but a review would be dull without The Bad:
As perhaps inevitable in a book hoping for popular consumption, the authors overstate their case, branding all mandated disclosure as useless or harmful. But disclosure is neither a panacea nor a poison.
Disclosures intended not to help consumers make complex decisions but to nudge their behavior in a particular direction can work. “Contains peanuts” is a disclosure that likely saves lives. The relevant consumers are highly motivated, sellers have no reason to hide the disclosure, and the information is provided at a point in time and in a manner that makes it easy to use for most consumers. Graphic disclosures have been effective in reducing smoking abroad. A picture of a wilted cigarette next to the word “impotent” appears to be a sufficient turn-off. Unit pricing disclosures at grocery stores facilitates comparative price shopping. More people can and will shop for the cheapest peas when someone else has done the math, likely increasing price competition to the benefit of all who shop at that store. “Smart” disclosure of energy consumption reduces energy use substantially. When people can see in real time that their electricity use is spiking, they can identify which appliances are energy hogs and many scale back use.
Disclosure can also work in more circuitous ways. Some, such as securities disclosures, work through sophisticated third party intermediaries. Others may work because they facilitate competition. Prior to mandated disclosure, firms had no way to credibly compete on trans fat content. But after the mandate, firms were able to advertise “no trans fat” on the front of packages to garner market share, even if most consumers did not read the mandated Nutrition Facts label on package backs.
The trans fat disclosure story may hold another lesson as well. It may have provided a bridge to a ban on trans fat that would have been politically impossible without consumer awareness of the issue, driven by the marketing enabled by the mandated disclosure. In addition, the disclosure regime gave firms an incentive to adapt over time, time firms used to reconstitute products without trans fat and even to develop new seed crops that produce oils that replace trans fat. The imminent national ban on trans fat is thus much less painful for firms and consumers than it would have been without a period of mandated disclosure.
Of course, in each of these examples disclosures faced conditions conducive to efficacy. Cigarettes cause not only long-term health problems that people ignore, but also short-term impotence that grabs attention. The market for peas is structured so that a minority of consumers can likely create price competition, at least within pea product classes (organic peas, petite peas, organic petite peas). Securities transactions are lucrative enough to support third party intermediaries. Enough social awareness of diet and fat existed for consumers to take notice of “no transfat” marketing. But all this is the point: under some conditions disclosure improves welfare and the trick is to limit its use to those conditions, whether previously existing or created by regulation.
In the introduction, the authors assert that disclosure is a “fundamental failure” (at 12) because it “fails to achieve its ambitious goals” (at 6). But policymakers’ grand expectations cannot be the right metric. The authors then assert that “the relevant issue is whether this kind of regulation does more good than harm” (at 13, emphasis added). Social welfare is the right metric, but the costs and benefits of disclosure cannot be assessed devoid of context. “This kind of regulation” may often fail, for all the reasons the authors claim and more, but without a careful examination of the effects of any particular disclosure, the authors cannot conclude that any particular disclosure is a failure.
Recent research on the CARD Act brings this point home. The Act requires issuers to include in accountholders’ monthly statements a chart that states (a) the amount of interest they will save if they pay down their existing debt in 3 years rather than making only the minimum payment and (b) the amount they need to pay monthly so as to retire their debt in 3 years. This disclosure appears to cause more accountholders to increase than to decrease their monthly payments, and thus leads consumers to pay less interest than they would otherwise have paid. The benefits of the disclosure are not dramatic (affecting, at most. .5% of accountholders and saving, on average, only $24 per accountholder affected). But the costs of adding the disclosure to the monthly statement, even if it does crowd out other information, are likely to be even smaller. Whether the disclosure crowds out better regulation is a more difficult to question to answer, one that depends on identifying policies that would entail fewer costs and/or produce more of the benefit policymakers seek. As Ben-Shahar and Schneider recognize, identifying such alternative policies is a task beyond the scope of this book.
And what about The Ugly? There is none. The book is a delightful read, as anyone who knows the wit and charm of the authors will not be surprised to hear. It should be required reading for policymakers and for consumer and patient advocates who, through comfortable familiarity in addition to the political and practical pressures the authors describe as the driving forces behind the use of disclosure, have become overly enamored of the tool. The book is chock full of wonderfully accessible yet nuanced examples and spot-on accounts of human thinking and feeling. Sometimes the authors over-generalize their privileged male perspective (contrary to their assertion, not all academics think they are more productive than their colleagues; female and minority professors of both genders notoriously underestimate their contributions). But the writing is honest to the authors’ own experience throughout, overcoming another fantasy of the privileged – that because we can understand and use (or think we can understand and use) the disclosures we encounter, the disclosures are, or have the potential to be, efficacious for the population as a whole. Kudos, gentlemen, kudos.
Wednesday, September 17, 2014
This is the fifth in a series of posts that are part of a virtual symposium on the new book by Omri Ben-Shahar and Carl E. Schneider, More Than You Wanted to Know: The Failure of Mandated Disclosure. Biographies for the first week's contributors can be found here. The authors' introduction to the symposium can be found here.
Ethan Leib is Professor of Law at Fordham Law School. He teaches in contracts, legislation, and regulation. His most recent book, Friend v. Friend: Friendships and What, If Anything, the Law Should Do About Them (Oxford University Press), explores the costs and benefits of the legal recognition of and sensitivity to friendship.
Is Omri Ben-Shahar a Duncan Kennedy in Disguise?
I couldn’t help but feel that the thrust of the argument against mandated disclosure for consumers in Omri Ben-Shahar & Carl Schneider’s More Than You Wanted To Know was one I have come to associate with Duncan Kennedy’s argument against unconscionability doctrine in contract law: it is liberal apologism, a convenient “solution” that large corporations and their political shills can tolerate and accommodate – and one that distracts attention from real regulatory solutions that could actually help those we are feeding with a tool they almost surely can’t use well. As with the crumb of unconscionability doctrine (and its meager remedies) which may divert regulators from more full-throated efforts to curb exploitation in consumer form contracts, mandating disclosure similarly seems like it might enable regulators to feel they are getting something done, all while failing to realize just how little piles of aggregated disclosures do for the average consumer or patient. By removing from the menu an option (unconscionability or mandatory disclosure) that provides false comfort about our clean capitalist markets being one of nondomination and full information, we might have a chance at increasing the friction and conflict in our markets, which could lead to a regulatory revolution, solving the things that truly ail us in capitalist life. This final step in the argument is what Kennedy took to outdo Arthur Leff’s basic criticisms of unconsionability.
It may seem odd putting Ben-Shahar from Team L&E side-by-side with Kennedy from Team CLS. But the morphological similarities of their arguments actually also help distill part of what doesn’t fully work about the argument: allowing the perfect to be an enemy of the good. Abandoning the strategy of mandated disclosure may be throwing out the baby with the bathwater. And if the political system is biased in favor of a certain class of disclosers and consumers that actually can make sense of the disclosures (one of Ben-Shahar & Schneider’s nice observations is that disclosure tends to have distributional consequences even among the class of consumers, favoring the rich and well-educated), it is hard to imagine that removing disclosure as a regulatory option will really open the pathway to stick it to the haves.
It is no doubt true – and one would be especially convinced after reading Ben-Shahar & Schneider’s well-executed book – that we have way too much mandated disclosure in our lives that disclosers, consumers, and politicians use badly. But despite overwhelming evidence that disclosure does badly in lots of contexts, using lots of different metrics (consumer knowledge, retention of information, consumer protection, actual terms), it would seem useful to highlight one success story that could help be a benchmark for when disclosure is, after all, a useful response to a regulatory problem and can be done well. The book spends most of its pages debunking failed strategies – but still leaves open the possibility that disclosure could really be different and productive in some areas. One is left to wonder what might count for Ben-Shahar & Schneider as a success story. We know for them it has to give the consumer information they can use to help structure her decision-making.
My favorite example of a “disclosure” – though it is not properly in the mandatory category – that really seems to give the consumer very useful information about the limitations of the product she is buying (facilitating informed decision-making) is the relatively new practice among a series of travel websites to offer (often opt-out) travel insurance at check-out when a consumer purchases a nonrefundable fare. This gives customers what Ryan Calo might call “visceral notice” that their fares will not be easily transferable or changeable – and that they will need to purchase insurance to get some of the benefits that airline tickets used to provide as a matter of course. This is an effective way to let customers know about a new limitation to air travel; even when they don’t buy the insurance, they “get” that insurance is necessary for certain flexibility that was once included in the price of air travel. By being presented with that (often opt-out) choice at checkout, customers’ reasonable expectations are reset. The customer knows what she is getting. More “visceral notice” of this form could be a productive future for mandated disclosure.
Yet even with one or two success stories Ben-Shahar & Schneider still have an important point to make: disclosures – even good ones – add up and inure the customer or patient to the whole lot of them. (Apologies to the authors, but I just can’t use the preferred neologisms in the book: disclosee, disclosurite, disclosurism.) Someone has to be curbing the proliferation or it is all static, the harder it is to hit the viscera.
But Ben-Shahar & Schneider do a little overselling of the “accumulation problem,” I think. To be sure, if mandatory disclosures come at us from state, judicial, federal, and administrative law, it is hard to imagine that we can pare down disclosures just to the effective ones without overwhelming the customer or the patient. But some focus in the world of mandated disclosure surely could be made at least within the federal system through the Office of Information and Regulatory Affairs (OIRA), which centralizes regulatory review in the Executive Branch. Indeed, notwithstanding the beating Professor Cass Sunstein takes in some sections of the book, former Administrator Cass Sunstein issued several memoranda that sought to put the OIRA in a role that promoted smart disclosure and carefully weighing the costs and benefits of different forms of disclosure. These are ultimately the real desiderata Ben-Shahar & Schneider support when they are not being purposefully provocative: weigh the costs and benefits of even smart disclosure. Although I have recently been critical of the process Administrator Sunstein used to develop his “quasi-regulations” on smart disclosure and simplification in a forthcoming paper with Nestor Davidson (Regleprudence – at OIRA and Beyond, 103 Geo. L.J. (forthcoming 2015)), there is little doubt that Ben-Shahar & Schneider could be selling their ideas to the new Administrator at OIRA who might be able to make real headway on the “accumulation problem,” subjecting many administratively designed disclosure regimes to the crucible of cost-benefit analysis.
Ultimately, I understand why the authors’ years of study have soured them on mandated disclosure. Their story is a dispiriting one: there are political economy problems, accumulation problems, cognitive bias problems, and innumeracy and illiteracy problems that all conspire to leave a reasonable person pessimistic about the future of mandated disclosure. But there is no revolution here in the offing. Best to focus on pointy-headed efforts at OIRA and clever visceral disclosures that get us in the gut.
This is the fourth in a series of posts that are part of a virtual symposium on the new book by Omri Ben-Shahar and Carl E. Schneider, More Than You Wanted to Know: The Failure of Mandated Disclosure. Biographies for the first week's contributors can be found here. The authors' introduction to the symposium can be found here.
Robert Hillman is the Edwin H. Woodruff Professor of Law at Cornell University.
Omri Ben-Shahar and Carl E. Schneider have written an important book. In the first two parts of their book, they usefully gather and describe the myriad shortcomings of what they call "mandated disclosure" as a regulatory tool and helpfully explain why disclosure very often fails. Following up on this analysis, in Part III Omri and Carl argue that mandated disclosure cannot be saved and "lawmakers should stop using it." (13) The book certainly should give lawmakers pause before adopting new disclosure strategies.
Omri and I have had many discussions on the merits or lack thereof of disclosure and we always agree to disagree. Still, always interested in a robust exchange of ideas, Omri kindly suggested me as one of the reviewers of the book for this blog. So it should be no surprise that what follows are some counterarguments that respond to assertions made in the book. I have already published my views of the importance of disclosure distinct from the question of whether anybody reads or understands disclosures, including for efficiency, autonomy, corrective justice, and moral reasons. See Robert A. Hillman and Maureen O'Rourke, Defending Disclosure in Software Licensing, 78 U. Chi. L. Rev. 95 (2011). So I will not duplicate those arguments here.
By way of introduction, although I agree with the authors that disclosure is far from a panacea for the various problems it is designed to treat, I fear that these two prominent scholars, perhaps in their zeal to make their case, have lost sight of the usefulness of disclosure in at least some circumstances and as at least one component of regulation to even the playing field between what they call disclosers and disclosees. Perhaps more worrisome, in my view, they engage in serious overkill in their discussion of the so-called harms of disclosure. In addition, although they leave little room for the use of disclosure--"[M]andated disclosure is so indiscriminately used with such unrealistic expectations and such unhappy results that it should be presumptively barred." (183)-- they are quite thin on how to rebut the presumption and what they propose as alternatives. But before lawmakers largely abandon disclosure as a strategy, one would think they need to contemplate what will replace it.
I also worry that Omri and Carl's efforts to go for the jugular on disclosure causes them to lump all disclosures, whether disclosure of contract terms, medical releases, Miranda rights, food labels, campus crime reports, etc. etc., as falling into the same unproductive trap. A more nuanced approach might have led the authors to see the wisdom of at least some disclosure strategies. For example, are they really advocating that vendors of software should not be required to disclose the terms of their licenses to licensees? "Sorry, Ms. Consumer, even though your software doesn't work one of our terms that we didn't have to show you is that you were licensing our software as is." (On page 118 the reader finds a nod to the possibility that some disclosures might work: "We have never argued * * * that all disclosures fail." But this admonition is buried in a landslide of condemnation contained in the book.)
In my limited space, I want to focus on Chapter 11's treatment of the harms of disclosure. I should reveal (after all, this is a piece about disclosure) that Omri and Carl open this chapter with a quote from Maureen O'Rourke and me to represent the folly of what they call "disclosurites". We argued that disclosure is one necessary tool for regulating software contracts and wrote that "disclosure is * * *inexpensive and, at worst, harmless." Hillman and O'Rourke, Defending Disclosure, supra. (Maureen and I, as Reporters for the American Law Institute's "Principles of the Law of Software Contracts," heard repeatedly from software vendors and tech people that disclosing end user licensing agreements on the Internet would be relatively costless.) Omri and Carl use our quotation as a taking off point for the proposition that disclosure causes lots of harm. I will also comment on Chapter 12's discussion of alternatives to disclosure.
Chapter 11: "At Worst, Harmless"
In what follows, I will comment on many of the "harms" of disclosure Omri and Carl present. My goal is to present a more balanced view on whether disclosure is harmful, not to convince the reader one way or the other on the merits of disclosure in these settings. Many of the issues demand a thorough empirical investigation before one can reach any conclusion.
"[W]e all spend uncounted hours dealing with disclosures, sometimes even reading them. * * * [A]ggregated, 'costless' is not the word that comes to mind." (170) But one of the authors' principal complaints about disclosure in many settings is that no one reads the boilerplate. So it is hard to see how licensees are spending "uncounted hours dealing" with disclosures. Omri and Carl devote several pages to a "Parable of Chris Consumer" (95-100) to point out the accumulation of disclosures people confront. But to illustrate the harm wrought by the quantity of disclosures, they portray that Chris is reading them, which they acknowledge is "the reductio ad absurdum of the accumulation problem." (101)
"Disclosure also undercuts against unconscionable contracts * * *. [H]ow can you claim surprise if you got a PROMINENT DISCLOSURE in ALLCAPS and initialed it." (172) The authors here invoke a warning I presented in my article, "Online Boilerplate: Would Mandatory Disclosure of E-Terms Backfire," 104 Mich. L. Rev. 837 (2006). But my conclusion was that the online environment affords consumers and especially watchdog groups easy access to terms (assuming they must be disclosed) who can "spread the word about unreasonable terms. * * * Even if disclosure backfires in the short term perhaps eventually the word will get out about a business's unsavory terms." 104 Mich. at 853, 856. So market forces, in conjunction with disclosure, may create a positive result. In fact, as a general matter, I don't think Omri and Carl sufficiently contemplate how the new world of digital communication might affect disclosure laws for the better.
"[S]ome commentators believe police use Miranda to inveigle suspects into seeing the police as their friends." (173) This seems rather weak evidence to build a case against the Miranda warnings. Relatedly, Omri and Carl also venture that Web privacy notices "soothe consumers' privacy worries and builds trust in the firm * * *." (173) The authors ignore the consumer uproar when Google and Facebook tried to enhance their right to collect personal data.
Omri and Carl assert that the Principles of the Law of Software Contracts' strategy of disclosure would mean that "the consumer would lose the right to withdraw from the contract" after opening the box and reading the terms. (174) But after opening the box, licensees are even less likely to read the terms no less decide to return the software based on the content of the terms. Further, Maureen and I heard lots of testimony concerning the difficulty of returning software after a licensee opens the box. So the loss of this right, which is far from certain under the software contract principles, seems inconsequential.
"More information is not better if it is wrong, or misleadingly incomplete, or irrelevant * * *." (175) This is true, of course, but the problem calls for a careful examination of which disclosures actually suffer from these infirmities, not for a blunderbuss approach of doing away with all disclosures. For example, the information contained in the disclosure of an end user licensing agreement is not "wrong, or misleadingly incomplete," and it is highly relevant.
"[M]arginally useful medical disclosures can drive out necessary but unmandated information." (175) The authors assert that because patients receive medical disclosures they lose sight of more important information concerning, for example, how to manage a chronic illness. I am doubtful.
Sharing a few anecdotes, the authors rail against disclosure because it allows some consumer buyers and home purchasers to avoid transactions by invoking "disclosure technicalities." (177) Perhaps some consumers do engage in this conduct, but we need to know how many consumers avoid transactions on justifiable grounds because of disclosures.
Chapter 12: "Beyond Disclosurism"
As already mentioned, Omri and Carl have made an important contribution to the disclosure debate by amassing and explaining the many problems of disclosure. I recommend the book for this reason. However, they seem to believe that their case is so strong that they do not have to worry too much about alternatives. In fact, they call alternatives to disclosure "the wrong—indeed a bad—question." (183) I am uncomfortable with that conclusion.
Notwithstanding the 'bad question," Omri and Carl present some alternatives to mandated disclosure. For example, the authors discuss the potential of intermediaries such as consultants and “information aggregators.” (186) However, they are not very enthusiastic about consultants as an option (“consultants can be unreliable” and they are often the disclosers themselves, “lack[ing] the incentive, patience, and reliability to evaluate and warn * * * of the fine print.”) (187) According to the authors, however, “information aggregators,” show more potential. Such aggregators can gather information from “surveys and research, feedback and observation” without the need for mandated disclosure." (187-188) But in my view, the question is wide open as to whether consumers really would be better off by relying on aggregators. The answer is probably that in some circumstances yes, and some no. Further, although some aggregators may not gather their information as the result of mandated disclosure, the authors concede that others do. For example, watchdog groups that monitor the terms of software end user license agreements can collect their information by accessing disclosed terms on the Internet. In response, the authors remark that mandatory disclosure “to eager and sophisticated intermediaries seems much more sensible than the present system.” (188) But at least in the software contract setting, what is the harm in allowing consumers to see the disclosures as well?
In the end, Omri and Carl turn to mandatory terms as a substitute for mandatory disclosure, although they are fully aware of the tradeoffs in pursuing this paternalistic policy. Perhaps ultimately wary of such a solution, the authors retreat by discussing examples in which they believe no regulation is warranted at all. But they supply a curious example. They mention Google and Facebook privacy policies as examples of terms that do not require regulation because users "seem not to feel degraded [by the loss of rights] or even to notice" the terms. (194) But disclosure of the companies' privacy policies combined with the power of the Internet to get the word out about the loss of privacy under the terms caused both companies to change or at least to respond to the criticism of their privacy policies.
"More Than You Wanted to Know" is very successful in inventorying the plethora of mandated disclosure strategies and explaining why they are overused and problematic. The book also usefully contemplates whether "mandatory disclosure can be saved," (118) although the authors conclude too readily that various strategies for doing so are also doomed to failure. In my view, the book would be even more successful if the authors spent more time identifying the kinds of disclosures that might work and considering how to improve current disclosure law, rather than condemning virtually all mandated disclosure.
Tuesday, September 16, 2014
This is the third in a series of posts that are part of a virtual symposium on the new book by Omri Ben-Shahar and Carl E. Schneider, More Than You Wanted to Know: The Failure of Mandated Disclosure. Biographies for the first week's contributors can be found here. The authors' introduction to the symposium can be found here.
Ryan Calo is an assistant professor of law at the University of Washington, where he co-directs the Tech Policy Lab, and an affiliate scholar at the Stanford Center for Internet and Society.
Disclosure Is Dead, Long Live Disclosure!
Omri Ben-Shahar and Carl Schneider are careful, meticulous, and forceful in their critique of mandatory disclosure as a regulatory mechanism. And they are in a basic sense right. Mandatory disclosure really does operate as this “Lorelei, luring lawmakers on to the rocks of regulatory failure” (4). I thoroughly recommend their rich new book, even if one has already read the law review article from which it sprung, The Failure of Mandated Disclosure, 159 U. of Penn. L. Rev. 647 (2011).
What Ben-Shahar and Schneider are not, however, is dreamers. They take rigorous aim at mandatory disclosure in its present form, without really imagining how that form stands to evolve.
More Than You Wanted to Know decimates mandatory disclosure by walking through its long history of failure. Everything the book says about notice is true. But now imagine for a moment a critique of hospitals from the 19th century with a similar structure—call it Worse Than the Cure: The Failure of American Hospitals. Here is the argument: Societies have used hospitals to sequester the sick for millennia. But the sick themselves continue to fare very poorly. We have tried to professionalize the staff; we have looked to specialization and statistics. Nothing works. Hospitals are places that the sick go to die, period.
How strange that feels. Where did our imaginary authors go wrong? Well, as late as the middle of the 1800s, medical professionals did not understand the role of hygiene in propagating disease. It took doctors like Oliver Wendell Holmes—father to the Supreme Court Justice—and the famed Florence Nightingale to popularize the idea that medical professionals wash their hands to prevent the spread of germs. Hospitals still face challenges around germs—staph infection, for instance. But of course modern hygiene practices revolutionized healthcare for the Industrial Age.
Today we live in a gee-whiz-bang world of information, an Information Age. And yet, when it comes to mandatory disclosure, we are using Guttenberg-era technology. The law expects plain, block text akin to how the Bible was printed in the 16th century. What innovation there is occurs at the margins. Ben-Shahar and Schneider discuss nutrition labels, icons, and light personalization as examples of notice innovation (121-37). These alternatives fail, or succeed only marginally; they, too, rely on conveying static information in words or its symbolic equivalent.
What if critics of disclosure today are like the 19th century critics of hospitals? What if we are on the cusp of a revolution in the way governments and firms communicate with citizens and consumers? How would we know? Companies like Twitter and Google render navigable an endless sea of information, and yet they write privacy policies and terms of service in block text because that is what the law expects. Were its techniques to catch up to, say, Facebook’s Newsfeed, who can say what disclosure could be capable of?
I canvass the prospect of law dragging disclosure into the 21st century at length in my article Against Notice Skepticism in Privacy (and Elsewhere), 87 Notre Dame L. Rev. 1027 (2013). Why bother to revolutionize disclosure, though? Why risk another shipwreck? Well, there is a reason that lawmakers keep picking notice as a regulatory mechanism, and that is the paucity of alternatives. Caveat emptor. Command-and-control. There are real tradeoffs to regulating through elaborate rules. We might say of mandatory disclosure what Winston Churchill once said of democracy: notice is the worst form of regulation, except for all of the alternatives.
I read Ben-Shahar and Schneider to implicitly acknowledge this point. They conclude the book (185)—and especially the law review article—with a call for less disclosure and more “advice”:
Advice is (usually) not just simpler and shorter than disclosure—if offers a different kind of help. Successful advice does not teach fundamentals or facts. It answers the real question: how likely are you to be satisfied?
The distinction between disclosure and advice is, to my mind, thinner than the authors make out. I am reminded of the distinction Ed Rubin draws between “theoretical” and “practical” knowledge: like advice, practical knowledge takes information and applies it specifically to the consumer’s particular situation. Sometimes it takes a simple warning to keep the kids off of the electric fence; other times a much more elaborate education is needed to create in the citizen or consumer and accurate mental model of risk.
Could the government mandate advice? Maybe. Could firms automate advice with technology? Increasingly, yes. Advances in artificial intelligence such as IBM’s Watson suggest that, at least within the confines of specific domains like healthcare, software can meaningfully assist professionals and consumers alike in making difficult decisions. If IBM’s system can beat people at Jeopardy and diagnose cancer, maybe it can walk you through term versus universal life insurance.
Who knows? I could be just another note in the long song of the Lorelei. I deeply admire this important work by Ben-Shahar and Schneider and will refer to it again and again.
No doubt benefitting from the ContractsProf Blog bump because of our posts about his scholarship, Robin Kar is topping the charts this week, but look who is sneaking in at #10: our own Nancy Kim!
Meanwhile, Jeff Lipshaw continues to defy expectations with his niche market hit on Hans Kelsen.
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This is the second in a series of posts that are part of a virtual symposium on the new book by Omri Ben-Shahar and Carl E. Schneider, More Than You Wanted to Know: The Failure of Mandated Disclosure. Biographies for the first week's contributors can be found here. The authors' introduction to the symposium can be found here.
Steven J. Burton is the John F. Murray Professor of Law at the University of Iowa, where he currently teaches Contracts and a Seminar on Advanced Problems in Contract Law.
I begin with a disclosure: I have been a skeptic about statutory disclosure requirements in my field, contract law, for many years. In More than You Wanted to Know: The Failure of Mandatory Disclosure, Omri Ben-Shahar and Carl E. Schneider marshal an impressive array of empirical evidence, coupled with cost-benefit analysis, to argue that the costs of “mandatory” disclosure as such are substantial while the benefits are close to nil. But their advocacy has not moved me to a conviction that mandatory disclosure laws generally should be repealed, as they conclude (p. 183). In particular, certain disclosure requirements in contract law probably should be retained.
There are two reasons for my skepticism about their conclusion. First, Ben-Shahar’s and Schneider’s arguments do not distinguish mandatory disclosures of various kinds. Thus, Miranda warnings, informed consent to medical treatment, mandatory disclosure of contract terms, and other mandatory disclosures, generally should fall for the same sufficient reasons.
The problem, they argue, is that mandatory disclosures fail to achieve their singular goal—to lead “disclosees” to make good decisions about unfamiliar and complex choices when interacting with sophisticated parties (pp. 34-5, 54). Such disclosures communicate hardly anything to disclosees. Such disclosures do not fit the way people organize their lives and make choices, cannot simplify complex ideas, and cannot overcome problems of illiteracy and inumerasy. “Disclosurites,” as they call supporters of mandatory disclosure in various contexts, expect people to do something they cannot and rationally do not want to do. And, they suggest, there is no way to cure these deficiencies.
I think, however, that some disclosure requirements serve other goals, which Ben-Shahar and Schneider do not discuss. Abolishing some such requirements would have legal consequences that others would not have. Absent informed consent, for example, surgery probably would constitute a battery; however, repealing TILA would not have similar consequences. I don’t know enough about disclosure requirements outside of contract law to say for sure. But I would prefer that they had addressed the legal consequences of nondisclosure in various areas.
The second and similar reason for my skepticism is that, with respect to contract law, Ben-Shahar and Schneider do not distinguish common law disclosure requirements from statutory requirements, such as the unwieldy TILA. In the common law context, disclosure of contract terms is necessary if parties are to be obligated in accordance with those terms. Otherwise, disclosees do not meaningfully consent to the boilerplate terms of many kinds of contracts, especially consumer contracts. Without meaningful consent, or some appropriate alternative basis of contract, disclosees should not be bound by those terms. By contrast, no such consequence would follow from repealing statutory requirements.
Ben-Shahar and Schneider do not address the problem of obligation. Again, they would do away with mandatory disclosure, as such, in almost all circumstances (p. 183). They would, it appears, bind consumers to contract terms even when the consumer did not have an opportunity to look at them: They conclude, “[t]he right to read boilerplate before a purchase . . . can be discarded and only a few eccentrics will notice” (p. 194). This goes beyond Judge Easterbrook’s controversial opinion in ProCD v. Zeidenberg. That case requires that a party have access to the terms after a purchase and an opportunity to return the merchandise for a refund if the terms are unacceptable. Ben-Shahar’s and Schneider’s data and arguments would apply as well to terms disclosed after a purchase. They seem compelled by their own reasoning to endorse binding consumers to a merchant’s hidden terms. The open door to abuse is evident.
Lest this seem a strained reading of the book, consider their alternative. Rather than mandating disclosure of information that consumers do not want, Ben-Shahar and Schneider would leave matters to the market. They believe that information intermediaries, like Consumers Union and numerous websites, will supply the information that consumers want, not more, not less (pp. 185-90). And, they believe, mandatory disclosure is not needed for intermediaries to get the information they need to offer “advice” in the form of ratings, rankings, scores, grades, labels, warnings, and reviews. People, they think, want opinions, not data (p. 185).
Yes, but. . . . Consumers and others surely should not be bound by hidden contract terms just because advice and opinions are available in the marketplace. There would be no basis for an obligation to abide by such terms, even if the information market is more efficient than mandated disclosure: We do not have a general obligation to do the efficient thing. Or would Ben-Shahar and Schneider endorse Karl Llewellyn’s view that consumers and others should be bound by the few dickered terms but not by the accompanying boilerplate? I don’t know. I don’t think so. But I should know after reading this book. I would prefer that they had addressed the problem of contractual obligation flowing from nondisclosure.
Ben-Shahar and Schneider might respond that worrying about obligation is idle nonsense when disclosure has so little effect. Their focus, however, is on disclosure at the time of contract formation. I suggest that obligations created at that time matter at the time for performance, when a dispute may arise. A consumer, for example, then may complain to a merchant about something the consumer believes to be awry. The merchant may point to the applicable term(s) in the contract. If the terms were fair and available, and the merchant relies on them appropriately, the consumer may go away disappointed while accepting that she had taken a risk by not reviewing the terms beforehand. If the terms were unavailable, however, the consumer is more likely to be angry. She might feel with justification that she was being treated callously.
And maybe she was. She may continue by disputing, suing, and bad-mouthing the merchant, even when the merchant’s hidden terms were fair and fairly applied. This would not be good for either, whether or not the merchant was dealing sharply. If that were all there were to it, some merchants would disclose terms voluntarily. If some would not, however, the consequences would not be good for other consumers and merchants, either. The fabric of retail contracting would be frazzled. So, there may well be an externality here that justifies requiring disclosure sufficient to create an obligation.
Obligations are not idle. They have benefits, and the costs of omitting them could be significant. Helping consumers make better decisions is not the only goal of disclosure requirements. In my opinion, further analysis is in order.
I conclude that, in their zeal, Ben-Shahar and Schneider have overgeneralized. But this should not detract from the important contribution their book undoubtedly makes. They have brought together in one place much that had been scattered, and they have synthesized the data impressively. That alone sheds much light on disclosure requirements in general. I believe they have established that such requirements are not easy solutions to what often are complex problems. When it comes to repeal, however, each requirement should be considered carefully, one by one, especially with respect to goals it may pursue apart from helping disclosees to make more informed decisions.
Monday, September 15, 2014
This is the first in a series of posts that are part of a virtual symposium on the new book by Omri Ben-Shahar and Carl E. Schneider, More Than You Wanted to Know: The Failure of Mandated Disclosure. Biographies for the first week's contributors can be found here. The authors' introduction to the symposium can be found here.
Aditi Bagchi teaches Contracts and Labor Law at the Fordham University School of Law, where she is an Associate Professor.
Omri Ben-Shahar and Carl Schneider make a persuasive case that mandatory disclosure is no panacea for complex decisions. We do not use much of the information we are given, nor would we make objectively superior decisions were we to try. Since disclosure is expensive, though not for the state that requires it, we should not take on its costs with exaggerated expectation of benefit. Some regulatory effort should be redirected to other methods, including mandatory regulation of conduct.
In the course of making these important points, Ben-Shahar and Schneider make other, harder claims. Fundamentally, they boil down to the one in the title, i.e., mandatory disclosure gives us more than we want to know. In particular, they claim “mandated disclosure is based on “false assumptions about what people think, do, and want.” (p.94) But the authors provide more evidence of what we do than evidence of what we think or want. Revealed preferences about disclosure (preferences gleaned ex post from how we use it, or don’t) may diverge from both considered individual preferences and collective preferences about an aggregate state of affairs.
One of the interesting moves Ben-Shahar and Schneider make is to talk about mandatory disclosure as such, generalizing across contexts. For example, their claims apply both to standard terms in consumer contracting and medical information relevant to patient decision-making. It is useful, though, to distinguish between small and big decisions because distinct considerations bear on each.
Let us start with big decisions, such as whether to undergo a proposed medical treatment, or which mortgage or retirement plan to select. Ben-Shahar and Schneider argue that people lack the ability and desire to process technical information relevant to these decisions. We appropriately rely instead on advisers to direct us to the best treatment, mortgage or retirement plan. Although the authors might be right about some of the political dynamics that best explain growth of mandatory disclosure in these areas, they do not consider one of the arguments that may best justify disclosure.
Our demand for information may be aspirational. Because we see ourselves as agents directing our lives rather than passively experiencing them, we want to make the basic contour of our lives as much the product of our own agency as possible. Yet we do not always act in accord with our reflective view of ourselves; we forfeit the chance to direct our lives in meaningful ways. We want to know more about our bodies and what will happen to us than we can muster the will to learn. Financial consumers infer from our responsibility for our choice of mortgage or retirement plan – responsibility that our systems of contract, employment, bankruptcy and social security impute to us – that we should acquire knowledge sufficient to exercise control prudently. But we do not make it happen.
Ben-Shahar and Schneider observe that most people are unable to understand financial decision-making. It seems likely, though, that we can understand enough to exercise better control than we do, but fail even to do that. Maybe Ben-Shahar and Schneider are right that complexity and frequency of choice make it very hard to proceed through life as we aspire to do in principle. Although they characterize this as rational conservation of energy, in light of my own reflective judgment that I should know more, my failure to do so should be regarded as just that.
Failure to exercise my own agency in a manner I endorse is a common moral failure, as human as the aspiration to agency itself. But in this context, the state can make it marginally easier to avoid the shortfall by lowering the marginal cost of processing critical facts. Exercising better judgment about a retirement plan need not entail, for example, acquiring the skill to predict which fund will perform best. It can be enough to learn just enough about funds to be able to identify those that have characteristics suitable for someone with my retirement aims. These characteristics may be reductive and legally defined.
Of course, I cannot report that individuals want more information; I am only suggesting some good reasons to think we might want it even though we don’t always use it. It is difficult to show directly how people think about major decisions. But consider a counterfactual: The information we are now provided about mortgages and funds is simply taken away. Doctors cease to explain treatment options in detail. Would we react to this change favorably? Actually, we need not rely on the hypothetical. Notwithstanding the evidence that people do not choose their health care plans or doctors with great care, they are told that henceforth they will be deprived of such choice. Contrary to an aside in the book (p.63), people did seem to get quite upset at the prospect.
One might dismiss our preferences about information and choice as ill-considered because meeting them does not assure satisfaction of our preferences over concrete goods and services. But why credit our preferences about the objects of choice over our considered preferences about the process of choice? Our desire for information, derivative as it may be from our very self-conception, is no less worthy of satisfaction in its own right, even at a cost.
Ben-Shahar and Schneider mischaracterize the “autonomy” interest at issue and the discontent that drives mandatory disclosure. That studying disclosure is unpleasant and may even make us “feel” less autonomous (p. 74) does not imply that disclosure in fact undermines autonomy, because autonomy is not an emotional state. Autonomy is served by making it easier for people to abide by their own regulative principles even where the principles are burdensome and we have a poor track record. The principles of conduct we endorse upon reflection are the work-products of our capacity for practical reason. We are not always adequately motivated by the judgments we make in that mode. But those judgments about who we are and how we should live have special standing, even in the face of evidence that we are not quite what we aspire to be.
Ben-Shahar and Schneider may be right that information about products and services will only result in more efficient consumption if we know ourselves (p. 108). But advocates of disclosure need not assume that we know ourselves as an empirical matter. A liberal state should usually operate under a regulative presumption that each of us knows ourselves better than anyone else because we are in important ways of our own making, constituting ourselves by way of the values we endorse. Because, for many of us, those values likely include a commitment to navigating important life decisions with understanding and deliberateness, our related preference for information to aid us in that effort should not be set aside lightly.
Because the best argument for disclosure sometimes lies in our self-understanding as choosing agents rather than our knowledge of ourselves as consumers or even patients, we can decline to defer to experts without suspecting that they are cheating or tricking us. We vary on a range of dimensions implicated by big decisions – we value different aspects of physical experience, we have different levels of risk aversion, our financial aims reflect broader life projects. Big decisions rely on and substantially impact fundamental features of ourselves. Sometimes, we do not wish to put ourselves on auto-pilot even if we are less likely to hit a bump.
Other times we are okay with auto-pilot. Turning to the small decisions (which cell-phone carrier?), it seems unlikely that our self-conceptions are very bound up with exercising judgment in a thoughtful way (though a case could be made, with respect to the totality of such decisions). But there is an alternative way to conceptualize our preferences about information in the retail context too.
Boilerplate is usually more than any one of us wants to know about each of the transactions we enter. But key to boilerplate is its uniformity and pervasiveness. The terms that govern your transaction probably apply to me too; in fact, they govern most of us. We collectively prefer that terms that govern our life are disclosed to us, even if most of us will not undertake to read those terms. We may not care much about particular terms but we do care about living in a society where legally binding rules are public. Indeed, we have long required laws that govern us to be published, even though most of us do not read those either.
Disclosing standard terms to each of us effectively discloses terms to “us” as a political and economic community (though thinking of it this way may alter the form of disclosure we require). Not only for instrumental reasons but also for reasons having to do with transparency, legitimacy and access, we want the rules by which we operate to be out there for us to jointly reference, evaluate and perhaps revise, by way of public discourse and politics. The mandatory regulation that Ben-Shahar and Schneider recommend as occasional substitutes for disclosure can only come about once we, as a community, know the terms that we reject.
In other words, sometimes I really do want to know more. And sometimes I don’t, but we do.
This week we will begin our virtual symposium on the new book by Omri Ben-Shahar and Carl E. Schneider, More Than You Wanted to Know: The Failure of Mandated Disclosure.
This week, the symposium will include contributions by the contracts law scholars introduced below:
Aditi Bagchi teaches Contracts and Labor Law at the Fordham University School of Law, where she is an Associate Professor. She writes about the nature of contractual obligation, contract interpretation, and questions in political and moral philosophy as they arise in contract. She has explored these issues with respect to employment and consumer contracts in particular. She has a related interest in the comparative political economy of contract, labor and corporate law.
Links to Professor Bagchi's academic papers can be found on SSRN here.
Steven J. Burton is the John F. Murray Professor of Law at the University of Iowa. He currently teaches Contracts and a Seminar on Advanced Problems in Contract Law. He joined the law faculty in 1977 after four years with the Office of the Legal Adviser at the U.S. Department of State.
Professor Burton is the author or co-author of five books: Elements of Contract Interpretation (Oxford University Press, 2009); An Introduction to Law and Legal Reasoning (Wolters, Kluwer, 3d ed. 2006); Principles of Contract Law (West, 4th ed. 2012); Contractual Good Faith: Formation, Performance, Breach, Enforcement (Little, Brown & Co., 1995) (with Eric G. Andersen); and Judging in Good Faith (Cambridge University Press, 1992). He has editedThe Path of the Law and Its Influence: The Legacy of Oliver Wendell Holmes, Jr. (Cambridge University Press, 2000) and co-edited American Arbitration Principles and Practise (Practising Law Institute, 2008) (with Robert B. von Mehren and George W. Coombe, Jr.). He is also the author of numerous journal articles, including "The New Judicial Hostility to Arbitration: Federal Preemption, Contract Unconscionability, and Agreements to Arbitrate" 2006 Journal of Dispute Resolution 469; "Combining Conciliation with Arbitration in International Commercial Disputes," 18 Hastings Journal of International and Comparative Law 637 (1995); "Good Faith in Articles 1 and 2 of the Uniform Commercial Code: The Practice View," 35 William and Mary Law Review 1533 (1994); "Default Rules, Legitimacy, and the Authority of a Contract," 2 Southern California Interdisciplinary Law Journal 115 (1993); "Racial Discrimination in Contract Performance: Patterson and a State Law Alternative," 25 Harvard Civil Rights - Civil Liberties Law Review 431 (1990); "Ronald Dworkin and Legal Positivism," 73 Iowa Law Review 109 (1987); and "Breach of Contract and the Common Law Duty to Perform in Good Faith," 94 Harvard Law Review369 (1980).
Ryan Calo is an assistant professor of law at the University of Washington, where he co-directs the Tech Policy Lab, and an affiliate scholar at the Stanford Center for Internet and Society. Professor Calo researches the intersection of law and emerging technology, with an emphasis on robotics and the Internet. His work on drones, driverless cars, privacy, and other topics has appeared in law reviews and major news outlets, including the New York Times, the Wall Street Journal, and NPR. Professor Calo has also testified before the full Judiciary Committee of the United States Senate and was a speaker at the Aspen Ideas Festival.
Links to Professor Calo's academic papers can be found on SSRN here.
Robert Hillman is the Edwin H. Woodruff Professor of Law at Cornell University. He has written extensively on contracts and contract theory, the Uniform Commercial Code, and related jurisprudence. His articles have appeared in the Stanford, NYU, Columbia, Chicago, Michigan, Northwestern, Duke, and Cornell law reviews, and he is the author of The Richness of Contract Law (1997) and a coauthor of the Sixth Edition of White, Summers, and Hillman, Uniform Commercial Code (2012 through 2014). A 1972 graduate of Cornell Law School, Professor Hillman clerked for the Hon. Edward C. McLean and the Hon. Robert J. Ward, both U.S. District Judges for the Southern District of New York. After private practice with Debevoise & Plimpton in New York City, he began his teaching career at the University of Iowa College of Law. Hillman joined the Cornell Law School Faculty in 1982, and, in addition to teaching and authoring or co-authoring several major contracts and commercial law works, he served as Associate Dean from 1990-1997. An arbitrator, consultant on commercial litigation, and the Reporter for the American Law Institute's Principles of the Law of Software Contracts, Professor Hillman teaches contracts, commercial law, and the law of e-commerce. He also teaches a class on the nature, functions, and limits of law for Cornell University's Government Department.
Professor Hillman's c.v., including a list of publications can be found here.
Ethan Leib is Professor of Law at Fordham Law School. He teaches in contracts, legislation, and regulation. His most recent book, Friend v. Friend: Friendships and What, If Anything, the Law Should Do About Them explores the costs and benefits of the legal recognition of and sensitivity to friendship; it was published by Oxford University Press. Leib’s latest scholarly articles will appear in Legal Theory (on fiduciary and promissory theory) and the Georgetown Law Journal (on “regleprudence” and OIRA). He has also written for a broader audience in the New York Times, USA Today, Policy Review, Washington Post, New York Law Journal, The American Scholar, and The New Republic. Before joining Fordham, Leib was a Professor of Law at the University of California–Hastings in San Francisco. He has served as a Law Clerk to then-Chief Judge John M. Walker, Jr., of the U.S. Court of Appeals for the Second Circuit and as a Litigation Associate at Debevoise & Plimpton LLP in New York.
Linkes to Professor Leib's academic papers can be found on SSRN here.
Lauren Willis is Professor of Law at the Loyola Law School, Los Angeles. Professsor Willis clerked for the Office of the Solicitor General of the United States and for Judge Francis D. Murnaghan, Jr. of the United States Court of Appeals for the Fourth Circuit. Before coming to academia, she was a litigator in the Housing Section of the Civil Rights Division of the U.S. Department of Justice and worked with the U.S. Federal Trade Commission on predatory mortgage lending litigation. Professor Willis joined the Loyola faculty in 2004. She has also taught at Stanford Law School, the University of Pennsylvania Law School and Harvard Law School. She was honored by Loyola’s graduating day class with the 2008 Excellence in Teaching award.
Her recent publications include:
- When Nudges Fail: Slippery Defaults, U. Chi. L. Rev.
- The Financial Education Fallacy, American Econ. Rev.
- Will the Mortgage Market Correct? How Households and Communities Would Fare If Risk Were Priced Well, Conn. L. Rev.
- Against Financial Literacy Education, Iowa L. Rev.
- Decisionmaking and the Limits of Disclosure: The Problem of Predatory Lending: Price, Maryland L. Rev.
Stay tuned. It's going to be a very interesting week on the blog!
Friday, September 12, 2014
When he famously wrote 100 years ago, “Sunlight is the best of disinfectants,” Justice Louis Brandeis began a century of disclosure law. How do we protect borrowers and investors? Disclosure! How do we help patients choose safe treatments and good health plans? Disclosure! How do we regulate websites’ privacy policies? Disclosure!
In area after area, mandated disclosure is lawmakers’ favorite way to protect people facing unfamiliar challenges. Truth in lending laws, informed consent, food labeling, conflicts-of-interests regulation, even Miranda warnings, all arose because lawmakers rightly worried that uninformed and inexperienced people might make disastrous choices.
Brandeis was wrong. True, these laws have a worthy goal – equipping us to make better decisions. But in sector after sector, studies steadily show that mandated disclosure has been almost as useless as it is ubiquitous. Financial crises have bred mandates for decades — the Securities Act of 1933, truth-in-lending laws in the 60s and 70s, Sarbanes-Oxley in 2002, and, after the 2008 crisis, the Dodd-Frank Act. But each new crisis occurred despite the old elaborate disclosure requirements.
In our new book MORE THAN YOU WANTED TO KNOW: The Failure of Mandated Disclosure, we explain that mandated disclosure has become the regulatory default. It is politically easy for legislatures and convenient for courts.
Sunlight doesn’t disinfect because mandated disclosure is so ill-suited to address the problems it faces – and, in fact, can do more harm than good. Consider one of the most heroic efforts to get disclosure right. “Know Before You Owe” is a new regulation issued by the Consumer Financial Protection Bureau, the agency responsible to reform consumer credit markets. The Bureau recognized that people took bad mortgages because they misunderstood the terms. To prevent this, the Bureau heeded the Dodd-Frank mandate to promote “comprehension, comparison, and choice.” After much intelligent work, the Bureau has a new, simpler form that has done well in laboratory tests:
Gone are the tiny fonts and the overloaded lines of the old form (on right). The new form (on left) is a masterpiece of design, declaring the dawn of a new era of smart and simplified disclosure, designed by lawmakers schooled in decision sciences and cost-benefit analysis.
But mortgage disclosure has to work in the bank, not in the regulators’ lab. When borrowers arrive at a real-world loan closing, they will get the Bureau’s new form and almost 50 other disclosure forms about issues like insurance, taxation, privacy, security, fraud, and constitutional rights. The new form is part of a stack more than 100 pages high, courtesy of many laws from many lawmakers over many years. Nobody plows through all this. And no single agency has the authority to pare down the stack.
Despite failures, disclosures are growing in number and in length. In health care, informed consent sheets now look like the fine print web users click “I Agree” to, thoughtlessly. Just reviewing the privacy disclosures received in one year would take a well-educated fast reader 76 work days, for a national total of over 50 billion hours and a cost in readers’ time greater than Florida’s GDP. In banking law, to describe the many fees in a garden variety checking account, the average disclosure is twice as long (and quite as dismaying) as Romeo and Juliet (111 pages).
In internet commerce, if you want to buy an iTunes song you are told (as the law requires) to click the agreement to the disclosed terms. Do you read before clicking? Of course not. Florencia Marotta-Wurgler and co-authors have showed that only one in a thousand software shoppers spend even one second on the terms page. And if you do print out the iTunes terms, you confront 32 feet of print in 8-point font (See Ben-Shahar’s photo with the iTunes Scroll below). Hard as you read, you can’t understand the words, what the clauses mean, or why they matter.
What about simplifying with just a few scores or letters, like A, B, and C grades for restaurant hygiene? Alas, boiling complex data down to a manageable form usually eliminates or distorts relevant factors. So a recent study by Daniel Ho at Stanford found that the volatility of restaurant cleanliness and the discretion given to inspectors make hygiene scores unreliable and even misleading – and do not detectably help public health. There is almost no evidence that the simplest of all scores – the loan’s APR – has helped people make better loan decisions, and there is plenty of evidence that it didn’t.
If disclosures are so futile, why do lawmakers keep mandating them? Because disclosure mandates look like easy solutions to hard problems. When crises occur, lawmakers must act. Regulation with bite provokes bitter battles (often stalemate); mandated disclosure wins sweet accord (near unanimity). Mandated disclosure appeals to both liberals (personal autonomy and transparency) and conservatives (efficient markets). And as one financier admitted, "I would rather disclose than be regulated."
But disclosures are not just inept. They can be harmful. Disclosure mandates spare lawmakers the pain of enacting more effective but less popular reforms. Disclosures help firms avoid liability, even when they act deceptively or dangerously. Disclosures can be inequitable, for complex language is likelier to be understood by those who are highly educated and to overwhelm and confuse those who aren’t. Mandated disclosures can crowd out better information (time spent “consenting” patients cannot be spent treating them).
We are often asked what should replace mandated disclosure. If it does not work, little is lost in abandoning it. And if it cannot work, the rational response is not to search for another (doomed) panacea, but to bite the bullet and ask which social problems actually require regulation and what regulation might actually lessen the problem. We do not envy lawmakers the hard work of helping people cope with the modern consumer’s life. But persisting in mandating disclosures is, as Samuel Johnson said of second marriages, the triumph of hope over experience.
Ben-Shahar is Leo and Eileen Herzel Professor of Law, University of Chicago.
Schneider is the Chauncey Stillman Professor of Law and Professor of Internal Medicine, University of Michigan.
Thursday, September 11, 2014
Next week, we on the ContractsProf Blog will be hosting a virtual symposium on Omri Ben-Shahar & Carl Schneider's new book, More Than You Wanted to Know: The Failure of Mandated Disclosure.
The symposium will feature contributions from Aditi Bagchi, Steven Burton, Ryan Calo, Robert Hillman, Nancy Kim, Ethan Leib and Lauren Willis, among others. The first five will go up next week, followed by more the following week, with responses from the authors interspersed.
Tomorrow, we will post the authors' introduction to the symposium, which summarizes the argument of the book. For now, we just introduce the authors themselves.
Omri Ben-Shahar earned his PhD in Economics and SJD from Harvard in 1995 and his BA and LLB from the Hebrew University in 1990. Before coming to Chicago, he was the Kirkland & Ellis Professor of Law and Economics at the University of Michigan. Prior to that, he taught at Tel-Aviv University, was a member of Israel's Antitrust Court and clerked at the Supreme Court of Israel. He teaches contracts, sales, insurance Law, consumer law, e-commerce, food and drug law, law and economics, and game theory and the law. He writes in the fields of contract law and consumer protection. Ben-Shahar is the Kearny Director of the Coase-Sandor Institute for Law and Economics, and the Editor of the Journal of Legal Studies. He is also the Co-Reporter with Oren Bar-Gill for the Restatement Third of Consumer Contracts.
A list of Professor Ben-Shahar's publications can be found here.
Carl E. Schneider, the Chauncey Stillman Professor of Law and Professor of Internal Medicine, teaches courses on law and medicine, regulating research, property, the sociology and ethics of the legal profession, and writing briefs. His scholarship criticizes the dominant regulatory ideas in the law of medical ethics, particularly as they are applied to subjects like the relationship between doctor and patient, the use of advance directives, physician-assisted suicide, and human-subject research. His The Practice of Autonomy: Patients, Doctors, and Medical Decisions (Oxford University Press, 1998), which analyzes the malign effects of making patient autonomy the regulatory summum bonum, is an example of that project. Prof. Schneider is also the coauthor of two casebooks. With Marsha Garrison, he wrote The Law of Bioethics: Individual Autonomy and Social Regulation (West, 2009, second edition), a pioneering casebook in its subject. With Margaret F. Brinig, he wrote An Invitation to Family Law (West, 2007, third edition), an innovative family-law casebook. He recently served on the President's Bioethics Council and has been a visiting professor at Cambridge University, the University of Tokyo, Kyoto University, and the United States Air Force Academy.
A list of Professor Schneider's publications can be found here.
I've posted a short paper to SSRN titled "Getting Paid in the Naked Economy." It is not too academicky, which may delight some and disturb others. Here's the abstract:
It is not new or novel to recognize that, from a legal perspective, there are many benefits to employers who hire independent contractors rather than employees. There have long existed incentives for employers to characterize workers as independent. What is shifting, however, is the workers’ narrative about independence. At least for creative and highly skilled workers, the changing narrative is one of free agency: ditch the man and chart your own course, which writers and entrepreneurs Ryan Coonerty and Jeremy Neuner have dubbed the “naked economy.” (Coonerty & JNeuner, The Rise of the Naked Economy: How to Benefit from the Changing Workplace (Palgrave MacMillan 2013)).
Why is this economy “naked”? While acknowledging vulnerability, the reference to nudity appears to emphasize freedom: “stripping work bare” to reinvent it with the essentials required for productivity and satisfaction. This frame of mind places high value on control and flexibility. It eschews the rigid 9-5 workday, with its commute and face time. It emphasizes work-life balance, changes in technology that allow for flexibility and the dream of charting one’s own destiny. All of these factors are coalescing to push people (at least, creative and highly skilled people) to choose independence.
Independent work, however, has its drawbacks. One of the significant problems in the independent workforce is nonpayment of invoices. 40% of respondents to a Freelancers Union survey reported trouble collecting unpaid fees from clients. (Freelancers Union, Independent, Innovative, and Unprotected: How the Old Safety Net Is Failing America’s New Workforce (2010), http://fu-res.org/pdfs/advocacy/2010_Survey_Full_Report.pdf). Of those respondents, 83% reported getting paid late; 33% reported never getting paid; and 28% reported getting paid less than billed. Id.
This short paper addresses independent workers’ very specific and all-too-common difficulties in getting paid. It is written for a mixed audience; it is intended to be both practical and accessible. There is hope that it will further the academic conversation, but it is also written for attorneys, policymakers and independent workers. Part I defines the naked economy and tracks the rise in independent work. Part II discusses the problem of nonpayment. Parts III, IV and V, respectively, provide an overview of the contractual tools, legislative reforms and market responses that are evolving to minimize the risk of nonpayment. The paper concludes that technology and private enterprise are evolving to meet the challenges of the independent workforce; however, contracting norms and legal structures must also rise to address the vulnerabilities of free agency.
It is available here.
Wednesday, September 10, 2014
Upcoming Online Symposium: Margaret Jane Radin on Ben-Shahar & Schneider, More That You Wanted to Know
Starting next week we will be hosting an online symposium on the new book by Omri Ben-Shahar (left) and Carl E. Schneider (right), More Than You Wanted to Know: The Failure of Mandated Disclosure. As is our wont, the symposium will consist of a fortnight's worth of commentary on the book, provided by contracts profs from around the county, and responses from the authors.
In the meantime, we hope to whet our readers' appetities with this review of the book from Margaet Peggy Radin, author of Boilerplate: The Fine Print, Vanishing Rights and the Rule of Law, which was itself the subject of an online symposium here on the blog. Radin's review has the provocative title: "Less Than I Wanted to Know: Why do Ben-Shahar and Schneider Attach Only 'Mandated' Disclosures?" Here is the abstract from SSRN:
This essay responds to a new book by Omri Ben Shahar and Carl E. Schneider, entitled MORE THAN YOU WANTED TO KNOW: THE FAILURE OF MANDATED DISCLOSURE (Princeton, 2014). The book is an elaborate disclosure of why disclosure fails. It is hard to disagree with the fact that widespread deficits in consumer reading, understanding and decisionmaking undermine the efficacy of disclosures, and the book provides plenty of data to show this. But the authors do not much confront the fact that many mandates for disclosures are a response to what happens when firms are free to design their own fine print. The same consumer decisionmaking deficits the authors here elaborate exist when the disclosure (allegedly contractual) is created by private firms; and firms take advantage of those deficits. If mandated disclosure is abandoned, as the authors recommend, do the authors think recipients of bad boilerplate should just be on their own? The authors did not consider that question as part of their project in this book.
Michelle E. Boardman, Consent and sensibility (Reviewing Margaret Jane Radin, Boilerplate: The Fine Print, Vanishing Rights, and the Rule of Law), 127 Harv. L. Rev. 1967 (2014)
Alex M. Johnson, Jr., The Legality of Contracts Governing the Disposition of Embryos: Unenforceable Intra-Family Agreements, 43 Sw. L. Rev. 191 (2013)
Yannick Pagnerre, Social Reforms to Cope with the Financial Crisis in France. 35 Comp. Lab. L. & Pol'y J. 299 (2014)
Andrew Verstein, Ex tempore Contracting, 55 Wm. & Mary L. Rev. 1869 (2014)