Research Matters: Omri Ben-Shahar on “More than You Wanted to Know: The Failure of Mandated Disclosure”

Research Matters is a biweekly feature in which a member of the faculty talks about some of his or her latest work and its impact and relevance to law and society.

Professor Omri Ben-Shahar and his colleague Carl E. Schneider of the University of Michigan Law School are co-authors of an upcoming book, “More Than You Wanted to Know: The Failure of Mandated Disclosure.” Princeton University Press will publish the book in early 2014. It builds off an article Ben-Shahar and Schneider wrote for the University of Pennsylvania Law Review in 2011, “The Failure of Mandated Disclosure.” In both the article and the upcoming book, Ben-Shahar and Schneider argue that the glut of mandated disclosures that touch every part of a consumer’s life, from the mall to the bank to the doctor’s office, are ineffective and problematic.

Q. How did this book develop?

A. Carl Schneider and I discovered that, while we were working in different areas of the law, we were basically developing the same thesis. His area is health policy and bioethics, and my area is contracts and consumer protection. But both of us, before we talked about it, had published articles in our respective fields arguing that regulation that aims at improving the information people get through what we call “mandated disclosure” does not fulfill the goals that it means to fulfill, is not likely to succeed, and sometimes does more harm than good. In my context these disclosures have to do with mortgages, banking, privacy, and contracts. For Schneider, it’s informed consent in health treatments, medical privacy, and so on. When we talked to each other, we realized we were making the exact same arguments and recruiting the same kind of social science evidence, but applying it narrowly in our fields. So we decided to write something that unifies the two frameworks. And in the course of doing it, we realized that the technique of disclosure is used generously and prominently in many other areas of the law. So the first sentence of the book is, “Mandated disclosure is the most common and least successful regulatory technique in American law.”

Q. Why are mandatory disclosures used so often, and why are they problematic?

A. They’re used so often because they’re plausible. People face complex decisions and make them poorly, because they don’t have enough information. If that’s the problem, then we have an obvious solution: give them the information. It’s also very alluring because it’s cheap. You don’t have to spend any money. Plus, politically, it’s both left and right. Disclosure mandates are laws Congress passes without dissent. And it’s also alluring because it seems that, even if it doesn’t work, there’s no harm. So there’s no apparent downside and a potential large upside.

But we’ve discovered two kinds of downsides. One is, it doesn’t work. If there are benefits, they’re very low. And two, it is not costless. The costs are not obvious. That’s why we need to write a book about it.

The argument that they don’t work can be proven empirically. There are mountains of social science evidence that show that disclosure mandates largely have failed to accomplish their goals. They sometimes help a little, especially for the more informed, sophisticated people, but they fall far short of their goals. The evidence is also in how often we see disclosure statutes being revised. This constant attempt to improve is one additional indicator for the failure. The empirical evidence provides the prima facie case, and the book spends a bunch of time trying to explain why they fail.

They fail because their goals are implausible. Basically mandated disclosure is a comprehensive reeducation campaign of the American population. Everything you don’t know, we will teach you, through short disclosures or long disclosures or booklets or fine print. If you don’t understand medical treatments, we’ll give you informed consent: 15 pages of all the side effects. If you don’t understand financial products, we’ll give you 100 pages of mortgage disclosures. If you don’t know what to do when the police interrogate you and they offer you a plea bargain, we’ll disclose to you your constitutional rights, and call it Miranda. If a particular predatory business comes and offers you a deal, like a credit repair organization, and you don’t know if it’s good or not, and what your rights are, the law will mandate they give you three pages of disclosure of rights. And it goes on and on.

Q. So is the problem that no one reads the fine print?

A. The problem is that you can’t educate everyone about everything all of the time in a comprehensive way. It’s impossible. Even if people wanted to, they can’t read everything. Just to read the privacy policies we all get on average every year, we would need 76 days of the year. Just the privacy policies. That’s a small fraction of the disclosures we get. And so it’s an implausible enterprise. The more you think about it, the more you realize, the failure of disclosure is obvious. There is an accumulation problem—disclosures are mandated by numerous agencies—and there is no solution to this problem. We don’t have a disclosure czar in our government that says, there are too many. Each agency is independent and courts add requirements of disclosures, and all these arise from a decentralized regulatory scheme that cannot be slowed down. In the end, we are faced with this clutter.

Q. How do you know disclosures don’t work?

A. We know they don’t work because each one of the problems related to them has been studied. There are hundreds of studies that explore disclosures’ readability, comprehension, use, etc., showing how rarely disclosures accomplish their goals. For example, we can prove that disclosures aren’t read. One study looked at online disclosures, like iTunes terms where you’re supposed to click “I agree.” It looked at tens of thousands of consumers through data that was given from an internet service provider. They found that only one in 1,000 consumers actually scrolls these terms, and everyone else doesn’t even bother. And this one in 1,000, that person spends an average of a few seconds on what is, on average, something like a 2,000 word document of difficult, not particularly readable, material. So a few seconds, maybe a few hours, would not be enough to absorb the material. So we conclude that the problem of no readership in that particular context is sufficient to make the disclosure, in that context, useless. Similar problems have been identified in many other contexts.

Q. Do you propose an alternative?

A. Yes, but it’s not how to replace one panacea with another. Because it would be ridiculous to think that one solution would solve all the problems that disclosure tried to solve. But I think we are offering a methodological breakthrough, away from that particular regulatory practice that is keeping us back. We think that there are information policies and tools that help people, and some Internet businesses thrive because they have developed them. For example, eBay’s success as a market maker is largely due to its rating methodology, which is a form of disclosure. It is not mandated by the government, but it works well because it aggregates advice. There are other problems that require solutions, not through information, but through tougher forms of regulation. And there are some problems that don’t require anything because they’re not really problems. For example, in our subsequent work we’re looking at mandated labeling of genetically modified foods. And I’m questioning the premise underlying this “right-to-know” movement that is trying to harness a mandated disclosure to accomplish some regulatory goals.

Q. Is policy change possible? Is anyone paying attention?

A. I think we are at the point in time of American thinking about disclosure where these ideas that we have in the book are more and more recognized and validated. Unfortunately, sophisticated commentators and even sophisticated lawmakers think that the problem is not with the mandated disclosure paradigm but with its implementation. So they think that the nth round of improvements will finally work because this time they are using better empirical and behavioral science to inform the project than before. We hope that the message of the book – that the problem is not in implementation, but in the paradigm – will be heard.