The Failure of Mandated Disclosure


Making informed decisions is crucial, whether a person decides to buy a new phone, undergo surgery or skydive. The law requires organizations and companies to release disclosures, but very few people spend even a minute reading those extensive documents.

Omri Ben-Shahar, co-author of "More Than You Want to Know: The Failure of Mandated Disclosure," is a skeptic of most required disclosures, and he presents the case for their limitations. He joins us to talk about the difficulty in informing consumers about complex decisions.

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Carl SchneiderCarl E. Schneider, Chauncey Stillman Professor of Law at the University of Michigan, co-wrote the book with Omri Ben-Shahar. Read an interview with Schneider.

Q: What role did you have with the publication of this book?

We’re co-authors. We contributed different things but equally. I contributed my expertise,  particularly on the medical side of the disclosure question, which means things like informed consent and privacy concerns and research regulation, administration [and] a whole host of other issues you encounter as a patient in the way of government  required disclosures.

Q: What got you interested in mandated disclosures?

I’d written about informed consent for a long time, and had written a book about how doctors and patients make medical decisions. It had made me very skeptical about the ambitions people have for informed consent, and Omri at the time was on the Michigan Law School faculty, and we thought it would be fun to have lunch. He started talking about mandated disclosure in his areas of expertise, and I started talking about mandated disclosures in mine. And we found we were encountering the same kinds of government requirements and the same kinds of failures, so we said this is beginning to look like a pattern; let’s write an article. A law review article is 60 pages or so in print, and we began to look around at how often mandated disclosure was used. We discovered it was used very frequently, and we began to ask about what literature there was on mandated disclosure in areas not in our expertise. We discovered it’s almost impossible to find evidence of mandated disclosures of achieving goals that were set for it.

Q: What are some examples of mandated disclosures?

The one sentence definition is it’s a government requirement to a transaction to give information to another party. It’s encountered in everyday life. Anytime, you buy something on iTunes, you are asked to agree to terms, and the terms are required by contract law and many other laws as well. Click to agree to those terms and you’ve just been through mandated disclosure. One of the things [people] instantly said [was], “Yes, I clicked those terms, but I didn’t even look at them,” and nobody does.

Q: Why don’t people read disclosures?

If you print them out [the iTunes disclosure] in a very small font and paste them together in a scroll, it’s 32 feet long. If you try to read it, with great respect, you won’t understand what it says. It’s written, one might suppose as simply as it is possible to write complicated documents, and almost nobody can understand the words. Even lawyers won’t understand what it means unless they specialize in that area of law because they don’t understand the alternative clauses. If you buy something on iTunes without reading the text, nothing bad seems to happen. If you went and looked at the text, it’s full of things you don’t care about. … People learned by and large, but not always, that nothing happens if we ignore these silly documents, so we go through the day regularly seeing these mandated disclosures, never reading them. And the world doesn’t collapse around them.

Q: What is the purpose of mandated disclosures?

Our argument is mandated disclosure doesn’t have a purpose. Mandated disclosure makes regulators feel they have done something, and it allows them to say they have done something. I’m not trying to suggest that regulators are cynical about it, but they know that things go wrong and believe if people are required to get information they would make better decisions from it.

Q: What would you like to see happen with disclosures?

I would like to see mandated disclosures used only where there is evidence that it works, which would mean it would be used very rarely. Part of the trouble is that you have to ask what it is mandated disclosure is supposed to achieve, and generally, regulators have very high ambitions for it, and judged by those ambitions it’s hard to think of an example of mandated disclosure that has really worked… One of the few mandated disclosures I actually use is nutrition information on packaged foods, but I can get that information off the web at any time without any difficulty because I know how to use the web and how to use nutrition information…. There is mixed evidence about how much effect these boxes have. Look at the side of a Wheaties box; it’s not just calories per cup, or calories per cup and how much salt, or calories per cup and how much salt and sugar. [The nutrition information] takes up the whole narrow side of the box, and every time they add something, they subtract the ability for people to make sense of it.

Q: What do you hope to accomplish with this book?

In the best of all possible worlds, courts and administrative agencies, and especially legislators would stop imposing these requirements, which don’t work, and instead ask what kind of problem are we trying to solve and what’s the best way of solving it. It’s easy to fall back on mandated disclosure. It doesn’t cost the government anything, and legislatively, you can almost get unanimous votes on disclosure. Some areas don’t need regulation, as we know from the fact that nobody reads these things. Other areas have problems, such as mortgages, and present real dangers to people if the enter into mortgages they don’t understand. But you can’t solve the problem with disclosure because we’ve been trying to do that for 30-40 years.

Interview has been condensed and edited.


Omri Ben-Shahar talks about the book and explains what disclosures are and their shortcomings. Watch the interview.

 

 

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