Make All Disclosures Machine Readable

Make All Disclosures Machine Readable

Perhaps the most useless of disclosures (a ridiculously strong claim, we concede) are the “terms and conditions” that online service providers share with their customers. We are sure that well-meaning regulators had very good intentions in requiring each one of the items in the list of terms and conditions. But in so doing, the regulators have rendered the disclosures useless. When researching this edition, we were told by our friends at the Behavioural Insights Team in London that the terms and conditions for using PayPal had a total of 36,275 words. That is a bit more than one-third the length of this book. We have a strong hunch that there is no one in the world, including any of the employees at PayPal, who has read all those words. In what meaningful sense does such a document deserve to be called disclosure? Obfuscation would seem to be more appropriate. To be clear, we in no way wish to single out PayPal. It was our colleagues at the Behavioural Insights Team who did that. The curious thing about these disclosures is that they are available online but might as well be a large pile of paper. They are not (easily) readable on a computer. The goal of Smart Disclosure is to solve that problem. The way we now shop for travel illustrates how that could improve things.

Readers of a certain age, perhaps over forty, may remember a time when there were many people with the job title of “travel agent.” If you wanted to fly from New York to Paris to Berlin to Rome and then back home, for example, you would call the travel agent, who would arrange flights and hotel reservations. Arranging the trip would entail multiple phone calls. We are not making this up; ask your parents.

Of course, travel agents are still around, but they have become an endangered species. Anyone with a computer or smartphone can book the trip just described, possibly making use of one or more travel websites such as Egencia, Expedia, or Booking.com. We call companies that help consumers to search among various options choice engines. A key thing to note about choice engines is that their ability to function depends crucially on their access to timely and accurate data on prices and availability. Because airlines post the relevant data online (in part because the government requires them to do so), travel websites can quickly search the flights covered by their data.

One might worry about whether choice engines should be trusted. Like any business, we think that they should be subject to the usual laws regarding fraud or self-dealing, and the appropriate regulators should monitor their behavior. But there are also sites such as Kayak that are choice engine aggregators, with which users can easily search across the various choice engines to compare the prices available through those services. The existence of such meta–choice engines can help consumers monitor the prices being offered by the choice engines themselves.

Travel websites are pretty good at what they do, but there can be gaps, because they do not always provide or even have access to all relevant information. For example, airlines were at one point not required to disclose, in the prices they posted online, information about the taxes that consumers would have to pay in order to buy tickets. Informed by behavioral economics, the U.S. Department of Transportation issued a regulation mandating fuller disclosure; as a result, consumers were greatly helped, as the share of those taxes that airlines passed on to them fell substantially. In some countries, alas, airlines are not required to post all pertinent fees, which means that searching for a price for two people traveling with large suitcases is not as simple as it might be.

True, it’s not the biggest problem in the world, but it can be hard to find out how much it costs to park your car at a hotel. The result can be sticker shock when visiting a big city. A larger problem is that many hotels and resorts use two fiendish practices: partitioned pricing, which is to divide a price into components without disclosing the total, and drip pricing, which is to advertise only part of a price up front and withhold other parts until customers move toward finalizing their choices (or even until they check out). Both of these practices exploit consumer inattention and they might disappear if Smart Disclosure was comprehensive in this space.

Still, travel shopping is a breeze compared to shopping for a mortgage. Mortgages have numerous technical details that can be very important but hard for consumers to process, and lenders do not post the full details of their prices online. This is one reason there is still an active profession of people called mortgage brokers, while travel agents are disappearing.

Another category for which data can be surprisingly hard to find is the ingredients of foods. The authors describe food-labeling requirements in the United States at the time of writing: producers listed ingredients on the package, but the list could be long. What if your child has a nut allergy? To make it easier to see whether a food contains potential allergens, the requirements discussed here also highlighted the presence of any of the top eight allergens. This is the book’s historical description of the labeling system. That’s good. But examining products one by one, looking for the absence of a particular ingredient, is quite literally a pain in the neck. Wouldn’t it be nice if this aspect of life, and of parenting, were made easier?