Disclosures: Definition
Forms created to provide useful in important financial decisions
How can we design
psychological interventions that help
improve our financial decisions?
Disclosures
Basics of Disclosures CHEAT SHEET
Informational forms “to help guide individuals in important
decisions”
* But do disclosures really help?
* Mandated disclosures
* Congress explicitly directed the CFPB to implement
regulations requiring disclosures for several financial markets
(Johnson & Leary 2017)
* Examples: mortgages (TILA-RESPA Integrated Disclosure),
overdraft coverage on checking accounts, prepaid cards
Types of disclosures
Warnings, information, feature description, conflicts of interest, or public disclosures
Goals of disclosures
Provides easy and accessible information, a disinfectant to manipulation, access to aggregated wisdom
* Overcomes the problem of asymmetric information
* Firms and consumers often have competing information that they may not want to share with the other party
* Economics of information theory argues that disclosing this information can led to better outcomes
Disclosure Design Tradeoffs
Competing goals: consumers (protect self) vs policymakers (protect society) vs firms (sell) vs lawyers (avoid lawsuits)
Education vs warning: understanding vs legal protection
Attention problem: too much info → ignored
Too little –> people stay uninformed
Responsibility: individual vs system design
Mandated vs firm: standardization vs bias
A model for disclousures CHEAT SHEET
Cheat sheet
Implication #1 for Policy Makers
Policymakers need to consider how to provide education and
information during earlier stages and not just at the point of
disclosure in the final stage of the decision
Implication #2 for Policy Makers
Full understanding of disclosure information may not be required
for consumers to still make an optimal choice for their situation
(which may reduce the importance of measuring understanding
during disclosure testing)
Disclosure example: Overdraft Coverage
allows for bank to temporarily cover a transaction that withdraws more than the balance of a checking account and leaves it negative
The customer is required to repay the expense along with overdraft fees
30% experience at least one overdraft fee
Banks started making $11 billion on overdraft fees.
What happened after Banks started making money off of people?
Federal regulations now require that financial
institutions gain consumers’ affirmative consent
(colloquially, “opt in”) for overdraft fees on non-
recurring debit card transactions and ATM
withdrawals.
Testing Overdraft Disclosure Forms
3 conditions of disclosure form for hypothetical Ficus Bank
- Model Form A-9: currently regulated standard disclosure form
- Comparison form: redesigned form with more readable, two-
column format - Example form: same as comparison with addition of example fees
from an overdraft transaction
What does it measure?
Measures: coverage decision, decision time, comprehension
Summary of Disclosure Research Findings
- People generally understand factors that make overdraft
coverage worthwhile - Improved disclosures can increase active choice but have little
effect on coverage levels, decision times, or comprehension - Engagement versus inattention
- Disclosures that highlight personal factors as an input to the
coverage decision also encourage more active choice - Should comprehension be the primary goal of disclosure testing?
- Does this provide a possible role for AI?
Disclosure Layouts
improve the way that information is presented
* Some menu design principles:
* Position: top and bottom items ordered more
* Description: detailed/complex items preferred more,
but too much nutritional info may lead to overload;
just need sufficient amounts
* Labels: evocative (suggestive) labels lead to positive
ratings, higher estimations of value and quality
* Design characteristics: font, bold, boxes/graphics, etc
Testing Disclosure Layouts
- Like overdraft, need to match consumers’ goals to how they
attend to different attributes - Eye-tracking measures
