Smart Disclosure: Promise and Perils
Behavioural Public Policy, Cambridge University Press (August 2019)
Posted: 24 Aug 2019
Date Written: August 21, 2019
The move to smart disclosure promises to revitalize disclosure mandates and save them from a fate of ignored verbiage. But by making disclosure relevant and effective, this shift to smart disclosure also raises several concerns. Specifically, simple disclosures like genetically modified food disclosures, restaurant hygiene grades, annual percentage rate disclosures, etc., can result in market distortions and inefficiencies as: (1) consumers might draw false inferences from the disclosure; and (2) disclosing one dimension will elevate this dimension relative to other dimensions, and thus distort demand for the product and even alter the product itself. Relatedly, System 1 disclosures, like graphic cigarette labels, might influence behavior by triggering an emotional response rather than through informed deliberation, thus abandoning traditional justifications for disclosure mandates. In light of these concerns, it is more difficult to view disclosure mandates as minimally paternalistic. Government, by tweaking disclosure design, wields substantial power over markets and consumers.
Keywords: disclosure mandates, “smart disclosure,” consumer behavior, behavioral economics
JEL Classification: D18, K29
Suggested Citation: Suggested Citation