Joshua Mitts Experiment on Mandatory Disclosure

Joshua Mitts of Sullivan & Cromwell has written How Effective is Mandatory Disclosure?  Here's the abstract:

Mandatory disclosure lies at the cornerstone of consumer protection law but its efficacy is unclear. I conduct one of the first online experiments on mandatory disclosure by evaluating a recent proposal to warn consumers of unexpected, unfavorable terms. To reduce sampling bias, I developed a "dynamic demographic filter" for Amazon Mechanical Turk, which is freely available to the research community. In stage one of the experiment, participants identify unfavorable terms they would not expect to appear in two types of consumer contracts. In stage two, different participants choose between highly similar providers with identical full-text contracts containing terms empirically found to be unexpected in stage one. One provider is randomly chosen to warn the consumer of a varying quantity of unexpected terms via a popup box. This provider’s products are offered at varying discount levels to identify the cost of the additional disclosure imposed by term substantiation. In a subsequent survey, participants are quizzed on the content of the unexpected terms to estimate the effect of term substantiation on consumer understanding. The results show that term substantiation had a nonlinear effect: three warnings had virtually no impact on contracting decisions but six warnings caused 20-30% fewer participants to choose the warned-of provider with larger discounts having little-to-no effect. In the post-choice quiz, term substantiation improved consumer understanding by 9-10% regardless of the number of warnings, indicating that consumers may be “tuning out” a lengthy list. These findings suggest that mandatory disclosure may be beneficial for a small number of unexpected terms but may excessively drive away consumers from firms subject to many warnings in exchange for little increase in understanding.