ContractsProf Blog

Editor: Jeremy Telman
Oklahoma City University
School of Law

Wednesday, September 17, 2014

Ben-Shahar & Schneider Symposium, Part V: Ethan Leib

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. SchneiderMore 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.

LeibEthan 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

Morethan 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.

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I am generally sympathetic to the idea of visceral notice. I think some of the problems associated with hidden terms could be addressed through boxes that consumers could check off. They could thus give their specific consent to, e.g., arbitration provisions, class action waivers, limitations on damages, forum selection clauses, etc. And each time they do so, their charges for the item in question would be appropriately reduced. That's one way to turn non-salient terms into salient terms, assuming that price is always salient.

But I don't think the travel insurance example works very well, because the important terms associated with travel insurance might remain hidden. I am planning a course that will be taught in Israel over our Spring Break. I have to buy travel insurance for the students. There are websites that allow you to pick the sort of coverage that you want, but that information is very general. The actual terms of the policies are available through a hyperlink. They are complex and surprising. For example, the insurance does not cover trip cancellation due to war (declared or undeclared), but it does cover trip cancellation due to terror attacks in a city on the itinerary. I am hoping to be able to leverage the ambiguity through the contra proferentem doctrine should the need arise, but really I don't fully understand the scope of the coverage, and I read the terms, which most people would not have done.

Posted by: Jeremy Telman | Sep 17, 2014 1:49:43 PM