Ben-Shahar in Forbes: More Information Isn't Always Better

Disclosed to Death
Kai Falkenberg
Forbes Magazine
June 7, 2010

Last month 7,500 online shoppers agreed to provide the British retailer Gamestation with more than just cash. They signed over their rights to eternal life. Gamestation added an "immortal soul clause" to its terms and conditions as part of an April Fool's Day experiment. (Notice of the transfer would be announced in 6-foot-high letters of fire.) Customers who read the clause and chose to opt out received a £5 discount on their next videogame purchase. Only 12% did, proving Gamestation's point that most people agree to terms and conditions without reading them.

This seems obvious to everyone but lawmakers. With each new social problem that emerges, from financially conflicted doctors to predatory lending, the knee-jerk solution is increased disclosure. It's cheap, it's easy and it supposedly empowers people to make better decisions. Trouble is, it doesn't work. In a forthcoming law review article professors Omri Ben-Shahar and Carl E. Schneider expose the spectacular failure of this commonly used regulatory technique.

In 2007 Ben-Shahar and Schneider were colleagues at the University of Michigan Law School, where Ben-Shahar taught contracts and Schneider focused on bioethics. Ben-Shahar, 47, who's now at the University of Chicago, was writing an article on the futility of boilerplate legal language in consumer transactions. Schneider, 62, had written extensively on the failure of informed consent in health law.

Over lunch one afternoon the professors had an epiphany--they realized they were both tackling the same problem from different vantage points. Delving further, they uncovered empirical evidence showing that mandated disclosure failed to improve decisions in just about every field.

Take credit cards. Truth-in-lending legislation and many state laws require lenders to disclose interest rates and fees. Lawmakers thought disclosing annual percentage rates would prompt borrowers to shop around for credit. The laws have succeeded in educating spenders that there is something called the APR. But the studies show that people still don't understand what APR means and that disclosure has not led to lower rates. "The poster cases that regulators have in mind, the people who carry large credit card balances," says Ben-Shahar, "are the least likely to be able to understand these disclosures."

Omri Ben-Shahar