A Bad Education
58 Pages Posted: 14 Jun 2016
Date Written: June 14, 2016
Mandated disclosure laws achieve their regulatory goals by educating the public about latent attributes of a product or service. At their best, they improve the accuracy of consumers’ cost-benefit analyses compared to a world without disclosure and inspire firms to reduce unnecessary risks. But when mandated disclosures do not improve cost-benefit assessments — when they are useless or, worse still, when they reduce the quality of those assessments — then they constitute a bad education.
American privacy law, which is principally a mandated disclosure regime, imposes a bad education on consumers. This article proposes a theory for differentiating valuable disclosures from wasteful and harmful ones. Valuable disclosures provide notice about material attributes without inducing an overreaction. After validating the theory in an experimental setting using disclosures about health risks, moral risks, and pseudoscience, we apply the model to four distinct forms of privacy invasive practices. We find that the disclosures required by regulators are usually wasteful and may cause consumers to overreact. This is the first study to compare disclosures about privacy practices to disclosures about other types of attributes. It raises for the first time a troubling insight: if consumer law were guided by the same justifications as our privacy law, it would have to mandate disclosures about GMOs, animal testing, and an unlimited range of other attributes that produce visceral responses.
Keywords: mandated disclosure laws, privacy law, cost-benefit, assessments, invasion of privacy
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