Transparency and full disclosure are popular notions, especially when applied to consumer product safety. If people have full access to knowledge about product content, then they can decide for themselves whether the product is safe, according to the prevailing view.
But when mandated by public policy, transparency and disclosure can have harmful unintended consequences, I have found in my research. For some consumers, the very fact that government requires disclosure about a product raises a red flag. Individuals will conclude that the government knows something they don’t about the product. Many people will believe the product content that requires disclosure is unsafe and then not consume the product—even if it does not contain any harmful ingredients.
I have been exploring how consumers make inferences about products in my research into the controversy over mandated labeling of food with genetically modified ingredients. I have used both consumer surveys and mathematical modeling to better understand how requiring disclosure on labels affect the attitudes and behaviors of consumers.
There is a growing debate in the United States over whether food with genetically modified ingredients should have to carry labels. Although labeling is not required now, some states are considering mandates. Last November, California voters defeated a referendum question that would have required labeling of genetically modified food in that state.
To understand how consumers react to labeling, my research assistants and I approached people who were outside grocery stores, next to an organic food truck, or in a university dining hall. We asked these consumers their attitudes toward the safety of genetically modified food. But before they stated their opinions, we told one group that the government was considering mandated labeling, while we told a second group simply that there is no requirement for labels now.
We found that the first group tended to have much greater concerns than the second group about the safety of genetically modified food.
I also approached the question by building a mathematical model based on classic game theory. The players in the game include a policymaker trying to do what is best for consumers in the aggregate, as well as individual consumers trying to do what is best for themselves as individuals. The model demonstrates that consumers often infer from mandated labeling that genetically modified food is unsafe, and they will avoid consuming it.
Although this research focused on genetically modified food, the results have broader implications for public policy. If physicians are required to disclose affiliations with pharmaceutical companies, many in the public may question the integrity of doctors. When security is tightened at airports, travelers may have more concerns about potential safety threats.
While mandatory disclosure can sometimes benefit consumers, policymakers do need to take into consideration the inferences consumers make in response to these initiatives. Although mandatory disclosure improves transparency, it also can widen the information gap between government and consumers, and cause consumers to misjudge the quality of a product.
Juanjuan Zhang is the Class of 1948 Career Development Professor and Associate Professor of Marketing at the MIT Sloan School of Management.