Study Shows Disclosures Can Boomerang and Produce Unintended Consequences

by Jeff Sovern

Some years ago, I wrote an article in which I speculated that disclosing to consumers that consumers rarely redeem rebates might cause consumers to disregard rebate offers.  Better-known scholars, like Ian Ayres and Oren Bar-Gill, have expressed similar thoughts.  Well, a new study suggests that the contrary is true. Molly Mercer of DePaul's Business School and Ahmed E. Taha of Pepperdine have written Unintended Consequences: An Experimental Investigation of the (In)Effectiveness of Mandatory Disclosures, 55 Santa Clara Law Review (2015 Forthcoming).  Here's the abstract:

Nearly everyone who purchases a product that offers a mail-in rebate intends to redeem the rebate.  Yet most consumers, including those who purchased the product because of the mail-in rebate, never submit the materials required to receive their rebates.  Thus, prominent legal scholars propose requiring rebate offers to disclose actual redemption rates. The idea, of course, is that such disclosures will improve consumers’ purchase decisions by causing consumers to realize that they too are unlikely to redeem rebates.  But is this what would really happen?  We report the results of a controlled experiment that examines the effects of such disclosures on U.S. consumers.  Surprisingly, we find that these disclosures backfire, increasing rather than decreasing consumers’ willingness to purchase rebated products.  We discuss how our experimental results inform both the rebate debate and the more general debate about the likely success of other non-restrictive legal interventions.

Quoting now from the conclusion:

[M]any lawmakers mistakenly believe that even if disclosure-based solutions do not help, they cannot hurt. That is, unlike other regulatory approaches, mandatory disclosures do not restrict consumer behavior because consumers are free to ignore the disclosures. Consequently, many lawmakers and academics assume that such disclosures will have either, (a) a positive effect, if consumers are influenced by the disclosures, or (b) no effect, if consumers are not influenced by the disclosures. Our results provide support for a third alternative that disclosures can harm consumersand highlight the potential danger of using mandatory disclosures to improve consumer decision-making.

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[The] disclosures were not only ineffective, they were harmful: the disclosures generally increased, rather than decreased, consumer optimism and the percentage of consumers who chose the rebated product.

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