Disclosure: Psychology Changes Everything

Abstract

Abstract:We review literature examining the effects of laws and regulations that require public disclosure of information. These requirements are most sensibly imposed in situations characterized by misaligned incentives and asymmetric information between, for example, a buyer and seller or an advisor and advisee. We review the economic literature relevant to such disclosure, and then discuss how different psychological factors complicate, and in some cases radically change, the economic predictions. For example, limited attention, motivated attention, and biased assessments of probability on the part of information recipients can significantly diminish, or even reverse, the intended effects of disclosure requirements. In many cases disclosure does not much affect the recipients of the information, but does significantly affect the behavior of the providers, sometimes for the better and sometimes for the worse. We review research suggesting that simplified disclosure, standardized disclosure, vivid disclosure, and social comparison information can all be used to enhance the effectiveness of disclosure policies. Acknowledgments:We thank Saurabh Barghava, Cynthia Estlund and Daniel Schwartz for helpful comments, and Jacob Reisberg and Spencer Baugh for superb research assistance.

The Council of Psychological Advisers

“…There is much more both to learn and to do; in this area in particular, existing knowledge is inadequate, and many gaps remain to be filled (Bubb 2014, Loewenstein 2014b. But in numerous cases, disclosure requirements have been psychologically informed, especially since the early 2000s.…”

“…(5) disclosure can be helpful, but only if it is psychologically informed (Loewenstein et al 2014b);and (6) cognitive accessibility (sometimes described as salience) greatly matters, in part because people have limited attention (Dolan 2014). Notwithstanding these lessons, it is important to acknowledge that the very idea of a Council of Psychological Advisers, or of psychologically informed policymaking, might produce political concern, possibly even alarm.…”

Redesigning Cockpits

“…But it would also be possible, for example, to emphasize social norms (Allcott and Rogers 2012); to provide purely factual information (Loewenstein et al 2014); to offer warnings; to frame options in particular ways (Willis 2013); to make sure that certain items appear first or last (Hanks et al 2013;Dayan and Bar--Hillel 2011;Wansink 2004); to require active choosing, perhaps on a frequent basis (Rebonato 2012); to provide the equivalent of "maps;" to offer frequent reminders; and to make certain variables or product characteristics highly salient.…”

“…On that question, the most substantial questions are unanswered, with some evidence that at least in some contexts, consumers are often not much affected, but that producers do alter their offerings (Loewenstein et al 2014). To what extent are consumers affected by environmental considerations, or by other factors that do not involve economic self--interest?…”

Redesigning Cockpits: Introduction to Special Issue of Journal of Consumer Policy on Behavioural Economics, Environmental Policy and the Consumer

“…The empirical questions are at least equally pressing. Indeed, some of the ethical questions can and should be studied in empirical terms, by asking about people's considered judgments about those questions (Felsen et al 2013;Loewenstein et al 2014). With respect to the effects of behaviourally informed interventions, social scientists and policymakers have learned a great deal over the last decades, especially with the benefit of randomized control trials (Banerjee and Duflo 2011).…”