MIT Sloan study highlights how disclosures have minimal impact on consumer behavior

May 9, 2019

CAMBRIDGE, Mass., May 9, 2019 –– Informational disclosures are a popular type of regulation, yet little is known about how much they actually impact consumer behavior. Do consumers pay enough attention to fine print for it to affect their decisions? In a recent study, MIT Sloan School of Management and his colleagues found that even valuable informational disclosures can have minimal impact, although there are some steps policymakers and companies can take to make disclosures slightly more effective.

“We looked at whether disclosures of product attributes –– and how those attributes stack up against competitors’ products –– do any good. Our study revealed that no matter what you tell people in fine print, consumers have been conditioned to ignore it. This is an uphill battle for regulators who are trying to support consumers with the information they need to make good choices,” says Palmer.

In the study, the researchers conducted a large-scale field experiment to evaluate the effectiveness of various disclosure designs aimed at supporting consumer choice across savings products. They looked at 124,000 savings account holders at five United Kingdom depositories who were given a simple disclosure: information about how their current interest rate stacked up against competitors and an opportunity to switch bank accounts to earn an average of $185 more per year in interest.

The disclosures differed in that some designs were more prominent with clear front-page information about better available products, some were less salient and positioned on the last page of account statements, others included pre-filled, postage-paid switching forms, and some were accompanied by timely reminder emails or text messages. Most consumers were offered the opportunity to have a somewhat higher interest rate to just stay with their current account.

Regardless of the design, there was a low level of switching, even among those offered the opportunity to keep everything about their current account the same and simply increase its interest rate. The average disclosure increased switching behavior by only 0.7 percentage points, from 8.7% in the control group to only 9.5% in the treatment group. A pre-filled switching form and well-timed reminders led to modest increases in switching. The just-sign-here form increased switching to 12% from a baseline of 3%, and timely reminder emails and text messages increased switching by 4-5 percentage points.

The researchers further found that prominent disclosures like readable front-page information on better available products had marginal effects, raising switching from 3% to 6%, while disclosures not on the front page of a mailing had no effect.

Palmer explains, “Our results show that savings accounts are in a sense sticky due to limited consumer attention to informational disclosures. We found that overly pessimistic beliefs about both the benefits of shopping around and the inconvenience of the switching process are key reasons for the price-insensitivity of individual savers.”

He notes that there are three takeaways from the study for companies and regulators who use informational disclosures. “First, firms can try to make things more readable and user-friendly because on the margin it makes a difference. It’s not a silver bullet, but disclosures can be better designed. Instead of fine print on the back of an annual statement, companies can send notices separately and invest in deliberate design to highlight what is most important.”

Second, policymakers and companies could think about what information is important enough to be highlighted and sent separately. “Different stakeholders will each want to include their pet disclosure, so there needs to be a holistic review of what would actually be useful to consumers. Too much information dilutes the potency of the message and it will be ignored,” says Palmer.

Third, disclosure designers should consider how consumers will view the source of the information. He explains, “If the disclosure seems good for the consumer at the expense of the firm (as in our setting), people may question whether there’s some sort of catch. If disclosure comes from a third party like a government agency, it may be deemed more trustworthy.”

Palmer adds that the lesson for policymakers focused on consumer protection is to “take into account consumer inattention and inertia when designing consumer protection disclosures. We can’t rely on people spending their bandwidth and attention to consider every fact disclosed to them because they’ve had years of practice being provided with too much relatively useless information.”

Palmer is coauthor of “Testing the Effectiveness of Consumer Financial Disclosure: Experimental Evidence from Savings Accounts.”

The MIT Sloan School of Management is where smart, independent leaders come together to solve problems, create new organizations, and improve the world. Learn more at mitsloan.mit.edu.