Tamar Kricheli-Katz of Tel Aviv University and Florencia Marotta-Wurgler of NYU have written The Distributional Costs of Effective Consumer Regulation. Here’s the abstract:
Disclosure is a cornerstone of consumer protection regulation, yet little is known about its differential effects across consumers. We study how disclosure format influences decision-making across the income distribution, drawing on insights from behavioral research on financial scarcity. Prior work indicates that financial stress can activate a scarcity mindset, narrowing the cognitive resources available for decision-making, and we examine whether, and how, disclosure design interacts with these constraints. Our evidence comes from three quasi-field experiments and two additional studies (N = 3,502) involving credit card gift cards, in which participants chose among options varying in fees and fund availability, with terms disclosed in one of three formats: expandable (“click here to view complete terms”), full (complete terms displayed), and salient (key terms made prominent). Salient disclosures significantly improved participants’ ability to select dominant options and avoid dominated ones, greatly reducing mistaken choices. However, when choices required a nontrivial trade-off between immediacy and cost, salient disclosure increased the likelihood that low-income consumers selected high-fee cards offering immediate access to funds, compared to high-income consumers. Consistent with a disclosure-induced scarcity mechanism, salient disclosures also heightened self-reported financial stress among financially vulnerable participants, who continued to select immediate access even when fees consumed as much as 40% of the card’s value. The results suggest that salient disclosure can often improve decision accuracy, but it may also lead to immediacy-focused, stress-driven choices among the financially vulnerable; these findings are not easily explained under a rational choice framework and point to a tension at the heart of disclosure policy, in which interventions that reduce mistakes may simultaneously exacerbate inequality in decision outcomes.
