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"Omri Ben-Shahar"
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More Than You Wanted to Know
Perhaps no kind of regulation is more common or less useful than mandated disclosure-requiring one party to a transaction to give the other information. It is the iTunes terms you assent to, the doctor's consent form you sign, the pile of papers you get with your mortgage. Reading the terms, the form, and the papers is supposed to equip you to choose your purchase, your treatment, and your loan well.More Than You Wanted to Knowsurveys the evidence and finds that mandated disclosure rarely works. But how could it? Who reads these disclosures? Who understands them? Who uses them to make better choices?
Omri Ben-Shahar and Carl Schneider put the regulatory problem in human terms. Most people find disclosures complex, obscure, and dull. Most people make choices by stripping information away, not layering it on. Most people find they can safely ignore most disclosures and that they lack the literacy to analyze them anyway. And so many disclosures are mandated that nobody could heed them all. Nor can all this be changed by simpler forms in plainer English, since complex things cannot be made simple by better writing. Furthermore, disclosure is a lawmakers' panacea, so they keep issuing new mandates and expanding old ones, often instead of taking on the hard work of writing regulations with bite.
Timely and provocative,More Than You Wanted to Knowtakes on the form of regulation we encounter daily and asks why we must encounter it at all.
eBook
Personalizing Mandatory Rules in Contract Law
Mandatory rules provide people protections they might otherwise fail to secure in their contracts. Because people vary in the degree of protection they need and the cost of protection they can afford, one-size-fits-all rules are too weak for some and too strong for others. This Essay examines the case for personalized mandatory protections. With the increasing availability of information about consumers, the law may soon be able to tailor mandatory protections that vary with each individual's characteristics. We show that personalized protections increase the overall contractual surplus and prompt more people to enter into contracts. It eliminates cross-subsidies within a class of contractors, but mostly in a way that benefits the class. Separately, we examine the case for price personalization reflecting the varying protections people receive. Lastly, the analysis identifies potential distortions, pitfalls, and practical problems arising from personalized mandatory rules and prices, and discusses the fairness of this regime.
Journal Article
THE FAILURE OF MANDATED DISCLOSURE
This Article explores the spectacular prevalence, and failure, of the single most common technique for protecting personal autonomy in modern society: mandated disclosure. The Article has four Parts: (1) a comprehensive summary of the recurring use of mandated disclosures, in many forms and circumstances, in the areas of consumer and borrower protection, patient informed consent, contract formation, and constitutional rights; (2) a survey of the empirical literature documenting the failure of the mandated disclosure regime in informing people and in improving their decisions; (3) an account of the multitude of reasons mandated disclosures fail, focusing on the political dynamics underlying the enactments of these mandates, the incentives of disclosers to carry them out, and, most importantly, on the ability of disclosees to use them; and (4) an argument that mandated disclosure not only fails to achieve its stated goal but also leads to unintended consequences that often harm the very people it intends to serve.
Journal Article
The Paradox of Access Justice, and Its Application to Mandatory Arbitration
Access justice is one of the most appealing and least contentious regulatory techniques in law's repertoire. It aspires to give people equal opportunity to utilize certain primary goods, and it does so by assuring openness—that access to these goods is not allocated by markets and is not tilted in favor of wealth or privilege. But access justice often fails to meet its egalitarian aspirations, because groups that are not the intended targets of the intervention deploy access and its benefits disproportionately. Paradoxically, access justice often benefits various elites while paid for directly by taxpayers and indirectly by weaker groups. This Article brings to light this unintended and regressive cross-subsidy created by policies of access to information, compensation, insurance, accommodations, and more. It then examines in detail a specific contemporary access justice paradox—consumers' access to courts and the impact of mandatory arbitration agreements that limit such access. This Article demonstrates that access to courts is a franchise of the elite and of little value to weak consumers. Nevertheless, it considers whether contractual waivers of access to courts hurt weak consumers by foreclosing effective access through class-action representatives. This concern has theoretical merit, but it, too, is limited in ways that are often unappreciated.
Journal Article
OUTSOURCING REGULATION: HOW INSURANCE REDUCES MORAL HAZARD
This Article explores the potential value of insurance as a substitute for government regulation of safety. Successful regulation of behavior requires information in setting standards, licensing conduct, verifying outcomes, and assessing remedies. In various areas, the private insurance sector has technological advantages in collecting and administering the information relevant to setting standards and could outperform the government in creating incentives for optimal behavior. We explore several areas that are regulated more by private insurance than by government. In those areas, the role of the law diminishes to the administration of simple rules of absolute liability or no liability, and affected parties turn to insurers for both risk coverage and safety instructions. This Article examines the methods used in regulation-through-insurance, and then explores the potential regulatory role of insurance in additional, yet unutilized, areas: (I) consumer protection, (2) food safety, and (3) financial statements.
Journal Article
Rethinking Nudge
Policy makers and scholars—both lawyers and economists—have long pondered the optimal design of default rules. From the classic works on \"mimicking\" defaults for contracts and corporations to the modern rush to set \"sticky\" default rules to promote policies as diverse as organ donation, retirement savings, consumer protection, and data privacy, the optimal design of default rules has featured as a central regulatory challenge. The key element driving the design is opt-out costs—how to minimize them, or, alternatively, how to raise them tomake thedefault sticky. Much of the literature has focused on \"mechanical\" opt-out costs—the effort people incur to select a nondefault alternative. This focus is too narrow. A more important factor affecting opt-out is information—the knowledge people must acquire to make informed opt-out decisions. But, unlike high mechanical costs, high information costs need not make defaults stickier; they may insteadmake the defaults \"slippery.\" This counterintuitive claim is due to the phenomenon of uninformed opt-out, which we identify and characterize. Indeed, the importance of uninformed opt-out requires a reassessment of the conventional wisdom about Nudge and asymmetric or libertarian paternalism. We also show that different defaults provide different incentives to acquire the information necessary for informed opt-out. With the ballooning use of default rules as a policy tool, our information-costs theory provides valuable guidance to policy makers.
Journal Article
The Perverse Effects of Subsidized Weather Insurance
This Article explores the role of insurance as a substitute for direct regulation of risks posed by severe weather. In pricing the risk of human activity along the predicted path of storms, insurance can provide incentives for efficient location decisions as well as for cost-justified mitigation efforts in building construction and infrastructure. Currently, however, much insurance for severe-weather risks is provided and heavily subsidized by the government. This Article demonstrates two primary distortions arising from the government's dominance in these insurance markets. First, existing government subsidies are allocated differentially across households, resulting in a significant regressive redistribution favoring affluent homeowners in coastal communities. This Article provides some empirical measures of this effect. Second, existing government subsidies induce excessive development (and redevelopment) of storm-stricken and erosion-prone areas. While political efforts to scale back the insurance subsidies have so far failed, this Article contributes to a reevaluation of the social regulation of weather risk by exposing the unintended costs of government-subsidized insurance.
Journal Article
THE RESTORATION REMEDY IN PRIVATE LAW
One of the most perplexing problems in private law is when and how to compensate victims for emotional harm. This Essay proposes a novel way to accomplish this remedial goal—a restoration measure of damages. It solves the two fundamental problems of compensation for emotional harm—measurement and verification. Instead of measuring the emotional harm and awarding the aggrieved party money damages, this Essay proposes that defendants pay damages directly to restore the underlying interest, the impairment of which led to the emotional harm. And to solve the problem of verification—compensating only those who truly suffered the emotional harm—this Essay develops a sorting mechanism that separates sincere claimants from fakers, awarding the restoration measure of damages to account only for the harm suffered by the former. This Essay further demonstrates how the proposed restoration remedy would apply in important cases and discusses its relevance to additional remedial challenges in private law.
Journal Article
Searching for the Common Law: The Quantitative Approach of the Restatement of Consumer Contracts
In 2012, the American Law Institute asked us to serve as reporters for a new Restatement of Consumer Contracts. Recognizing that many innovations in American contract law in the past generation occurred in the area of consumer transactions, the project seemed timely and challenging. We discovered that many of these innovations are controversial and seemingly subject to conflicting approaches in the case law and heated debates among commentators. We also discovered that prior attempts to devise a unified set of rules have largely failed. We therefore decided to take a new approach to our search for, and restatement of, the emerging rules. In addition to identifying the majority rules, we used an empirical approach that involved collecting, coding, and systematically analyzing the entire body of court decisions on relevant questions. We identified the degree of support that different rules garnered in courts and the rate at which they were adopted or rejected over time. We thus discovered which rulings and rationales serve as guiding precedent. We based the black-letter rules in the final draft of the Restatement of Consumer Contracts on these findings (complementing them with qualitative support). In this Essay, we present our empirical approach to searching for the law and legal precedent, discuss its conceptual and normative foundations, and describe some of the doctrinal debates it helped resolve.
Journal Article