Ineffective in Any Form: How Confirmation Bias and Distractions Undermine Improved Home-Loan Disclosures

24 Pages Posted: 24 Jun 2014 Last revised: 8 Jul 2014

See all articles by Debra Pogrund Stark

Debra Pogrund Stark

The John Marshall Law School

Jessica M. Choplin

DePaul University

Mark LeBoeuf

DePaul University

Date Written: June 23, 2014

Abstract

This article examines three experiments that tracked eye fixations as participants review home-loan disclosure forms. The experiments revealed confirmation biases in which participants read to confirm what they were told (e.g., "Your loan is at 4%") and then failed to look for contradictory evidence such as rate adjustments. Improved forms reduced confirmation biases, but that improvement was undermined when the experimenter engaged participants in distracting conversation. These results demonstrate that improving disclosure forms cannot sufficiently protect consumers. The authors propose a new federal law that would require consumers applying for a home loan to take out a "financial literacy" and if they fail that test that they should be required to receive mortgage counseling at the time that they receive an offered home loan.

Keywords: Consumer protection, home loans, disclosure forms, cognitive barriers, confirmation bias, distraction, real estate, housing, legal reform

JEL Classification: K00

Suggested Citation

Stark, Debra Pogrund and Choplin, Jessica M. and LeBoeuf, Mark, Ineffective in Any Form: How Confirmation Bias and Distractions Undermine Improved Home-Loan Disclosures (June 23, 2014). Yale Law Journal, Vol. 122, No. 2012-2013, 2013. Available at SSRN: https://ssrn.com/abstract=2458049 or http://dx.doi.org/10.2139/ssrn.2458049

Debra Pogrund Stark (Contact Author)

The John Marshall Law School ( email )

315 South Plymouth Court
Chicago, IL 60604
United States

Jessica M. Choplin

DePaul University ( email )

United States
773-325-2052 (Phone)

HOME PAGE: http://condor.depaul.edu/~jchoplin

Mark LeBoeuf

DePaul University ( email )

1 East Jackson Blvd.
Chicago, IL 60604
United States

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