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.