In the United States, the information companies are required to disclose to consumers can take several forms. Some disclosures are statements displayed on a product (“Warning: Cigarettes Cause Strokes and Heart Disease”). Others are numbers, from product characteristics (calories) to government ratings (Crash Safety Ratings). And some are notifications about certain actions (like the charging of overdraft fees). What most American regulatory and disclosure policies have in common, though, is that they are based on the assumption that what matters is making information accessible. As long as it is easy to obtain, the structure and format of information disclosure is assumed not to matter much. But Richard Thaler of the University of Chicago and Will Tucker of ideas42 argue that behavioral research tells us otherwise in a recent article in the Harvard Business Review:
“Even subtle changes in how information is presented can have significant and predictable impacts on how people process and act on it. Tiny details can matter—a lot. Labeling a food 90% fat free can have a different effect than calling it 10% fat. There is some evidence that if retirement-plan statements presented savings in terms of the monthly income that would be available in retirement rather than the current account balance, people would increase their contribution rate. Even trained financial professionals rated aesthetically pleasing annual reports as better investments than less attractive reports that contain exactly the same data. In fact the spiffy report impresses the finance pros as much as a 20% increase in annual revenues.”
For most people, this makes shopping and comparing increasingly difficult:
“Neither of us could tell you what our average and peak mobile phone and data usage are (though our providers certainly could)—much less whether another provider would give us a better deal or better service (though we suspect that’s so). Even when the stakes are potentially much higher, such as choosing a mortgage, most people take the first offer they’re given, even though a bit of shopping could save them thousands of dollars. Companies thus have real incentives to invest time, energy, and talent in competing through obfuscation. When firms can gain market share that way—by hiding product characteristics in the plain sight of fine print, for instance—market efficiency, other firms, and consumers all suffer.”
But, as they note, an emerging set of policies – promoted in the ideas42 co-organized and Alfred P. Sloan Foundation-funded White House Summit, “Informing Consumers through Smart Disclosure” – is taking data already required to be disclosed by companies and making it public and machine readable, moving it “from the sides of pill bottles, snail-mailed credit card offers, or cereal-box ingredient labels to revolutionize the way consumers and businesses use information.”
Done right, this could lead to “choice engines,” (think of kayak.com to help you choose a flight) across the economy, a new market competing to help consumers make the sensible decisions that they would wish to make:
We have many more options than our grandparents did. At one time, all telephones were black and came with dials, all mortgages (in the U.S., at least) were of the 30-year fixed rate variety, and you paid for stuff with cash. Even then, consumers struggled with decisions. Smartphones, adjustable rate mortgages, and credit cards offer us more options but also make decision making more difficult.
Technology offers society an opportunity to help consumers make the best of the rich variety of options from which they now can choose. The key is to use the power of accessible data to empower consumers via smart disclosure. Smart disclosure won’t make people better decision makers on its own—but it will get machines and complex options working for consumers, just as big data can help companies improve business strategy. This policy innovation has the potential to be a win-win-win. Consumers win by getting the products and pricing plans that best suit their preferences, essentially reducing their cost of living. Businesses can win by competing on high-quality products at good prices, without the risk of losing out to less scrupulous firms who compete through deception. And entrepreneurs and innovators can win by devising new ways of serving consumers.
