More than You Wanted to Know: The Failure of Mandated Disclosure.

• Author: Bubb, Ryan
• Position: Book review

MORE THAN YOU WANTED TO KNOW: THE FAILURE OF MANDATED DISCLOSURE. By Omri Ben-Shahar and Carl E. Schneider. Princeton and Oxford: Princeton University Press. 2014. Pp. x, 195. $29.95.

INTRODUCTION

We are inundated with disclosures in our daily lives. In one of the more evocative passages in their stimulating new book, More Than You Wanted to Know, Omri Ben-Shahar (1) and Carl E. Schneider (2) imagine a day in the life of someone who actually reads all those disclosures (pp. 95-100). During a commercial on the morning news, the protagonist hits pause on the TiVo to catch the fine print that would otherwise fly by. Breakfast is a slog, requiring close reading of the toaster's ominous label and the disheartening nutrition facts on the butter and jam. More of the same awaits at the office, where the pop-up announcing a critical software update is accompanied by a lengthy and perplexing end-user license agreement. And so on. The parable vividly illustrates the fanciful nature of the hope that many disclosures will be digested and used in the way their designers intend. Truly reading and trying to comprehend even a modicum of the disclosures we face "would mean a life-time educational project like the worst of high school--boring subjects and nasty tests going on your permanent record" (p. 70).

Ben-Shahar and Schneider provide both a compelling account of how we arrived at the current state of ubiquitous ineffective disclosure and a sweeping critique of disclosure as a regulatory technique. Disclosure is seductive to lawmakers because it seems so plausible that more information is always better and essentially costless to furnish. But the authors survey the evidence and find that disclosure has failed time and again. Its failure is due at root to a misunderstanding of psychology. Disclosure rests on the false assumption that people actually want to make all of the significant decisions in their lives (not to mention the insignificant ones) and to make them with care. In fact most of us are decision averse. And when we do struggle through complex decisions, disclosures typically offer little useful simplification. These problems with disclosure are compounded by its rampant use. Each additional disclosure reduces the attention paid to those that have gone before, leading to overgrazing on the disclosure commons. As a regulatory technique, mandatory "disclosure is a fundamental failure that cannot be fundamentally fixed," and "what fails should be abandoned" (p. 12).

More Than You Wanted to Know is timely, arriving amid a surge in enthusiasm for light-touch regulatory tools like disclosure that attempt to move choices in the right direction. One influential approach--popularized by the best seller Nudge (3)--dons the mantle of libertarianism, eschewing regulations that would limit freedom of choice in favor of simply redesigning the "choice architecture" through interventions like disclosure to achieve regulatory goals at little cost. The ascendancy of this approach has served to delegitimate choice-limiting policies. If we can achieve so much for so little through harmless tweaks to choice architecture like disclosure, then why ever resort to tools like product regulation that might prohibit someone's preferred option? What sort of Neanderthal would continue with such outmoded forms of regulation? Ben-Shahar and Schneider provide a refreshing counterpoint to the shift toward "nudging." Mandating disclosure to improve choice architecture in fact has a long history and a poor track record; the authors explain why.

But while the book provides an important critique of the traditional approach to mandatory disclosure, it does not fully engage with the burgeoning behavioral literature on disclosure that advocates alternative approaches. To explain the limits of the book's critique, I begin by reframing the core thesis of the book as an application of dual-process theory from cognitive psychology. Ben-Shahar and Schneider analyze a particular--and undoubtedly prevalent--rationale for disclosure regulation: providing information to improve deliberate decisionmaking. They convincingly show that this model of disclosure often gets the psychology wrong. Our effortful deliberate processes are not so easily improved and are often not even engaged as our more intuitive processes predominate.

This is not, however, disclosure's only modus operandi. I examine an alternative mode that aims simply to influence rather than instruct. This mode of disclosure harnesses our more intuitive processes to move beliefs or behavior in a specific direction. To this approach Ben-Shahar and Schneider's main critique does not apply. But other critiques do, and 1 offer several.

Finally, I turn to their normative bottom line. While debunking excessive faith in mandatory disclosure--what they term disclosurism--Ben-Shahar and Schneider develop an ism of their own--what we might call antidisclosurism--by arguing for total abandonment of, or at least a presumptive bar against, mandatory disclosure. But their approach risks making a mistake symmetric to that of the nudge advocates who adopt strong presumptions against any limitation of choice. We are better off avoiding all of these isms in our regulatory thinking. The right response to the important critiques of mandatory disclosure that Ben-Shahar and Schneider raise is not a presumption against disclosure but rather rigorous empirical assessment of which disclosures work and which do not, with an eye toward the pitfalls the authors document. About disclosure, there is still a great deal more to know.

1. THE FAILURE OF MANDATORY DISCLOSURE

   The typical problem for which mandatory disclosure is prescribed involves a relatively inexperienced person making an unfamiliar and complex decision, usually in dealing with a sophisticated specialist (p. 3). Think of a first-time home buyer working with a mortgage broker to choose a home loan. The worry is that the nonspecialist will choose poorly, a concern that is amplified when the specialist has an incentive to take advantage of the nonspecialist. An opportunistic mortgage broker, for example, might steer a naive borrower into a relatively high-cost form of credit. In response, the law often requires the specialist to make intensive disclosures of certain information to equip the nonspecialist to make a good decision. Ben-Shahar and Schneider count a total of forty-nine distinct disclosure documents included at a typical mortgage closing (p. 22). This is not unusual. Across diverse areas from contract law to criminal procedure, from health law to securities regulation, mandatory disclosure is astonishingly ubiquitous, an observation the authors credit for getting them started on the intellectual project that became the book (p. ix).

   The goal of disclosure, as conventionally understood, is to provide "information that equips disclosees to understand their choice well enough that they analyze it and make a well-informed, well-considered decision" (p. 34). The authors use this rationale, which they refer to as full disclosure, as the benchmark by which to evaluate mandatory disclosure (p. 35). It is this goal that leads to intensive disclosures, like the avalanche of mortgage documents, in response to complex decisions (p. 39).

   The ubiquity of disclosure, on the authors' account, is due in part to an ideological belief among "disclosurites" that its benefits exceed its costs-and that any problems with it can be fixed by simply fine-tuning the mandate--regardless of the evidence to the contrary (p. 6). Such disclosurism is Ben-Shahar and Schneider's main target.

   Surveying the evidence, the authors find that, contrary to the disclosurite faith, "in field after field there is good evidence that mandated disclosure does not achieve disclosurites' goals" (p. 47). To provide concrete examples, Ben-Shahar and Schneider focus on disclosures for consumer credit, informed consent to medical treatments, and privacy policies (pp. 43-46). While they allow that there are studies that show disclosures leading to some improvement in disclosees' understanding, they argue that disclosures "do not bring [disclosees] near the level of understanding needed to make good decisions" (p. 47).

   The continuous revision of mandatory disclosure in response to dissatisfaction with it serves as further confirmation of disclosure's irredeemable failure. For example, in 1980 Congress passed the Truth in Lending Simplification and Reform Act in response to the concern that the disclosures under the original 1968 Truth in Lending Act were obtuse (p. 50). But the same basic concerns about consumer-credit disclosures were reiterated in the latest round of reforms following the recent financial crisis--an indicator that "lawmakers repeatedly recogniz[e] that laboriously built mandates ha[ve] failed" (p. 51).

2. A DUAL-PROCESS ACCOUNT OF THE FAILURE OF FULL DISCLOSURE

   The authors argue that "not only does the empirical evidence show that mandated disclosure regularly fails, failure is inherent in it" (p. 12). To convey their explanation for the frequent failure of existing mandates--and to show the limits of their critique--it is useful to reframe their analysis as an application of dual-process theory from cognitive psychology.

   1. System 1 and System 2

      Dual-process theory models judgment and decisionmaking as involving two types of mental processes. (4) System 1 refers to cognitive processes that are fast, automatic, and unconscious. (5) System 2, in contrast, is slow, deliberate, and conscious. (6) System 2 is who we think we are. But a large body of evidence shows that System 1 in fact governs much of what we think and do. The two systems are not unrelated; even when we engage System 2 to make a judgment or choice, our System 1 has often already provided a starting point, even if we are not wholly aware of this. System 2 often endorses intuitive assessments and ideas generated by System...