Evidence on the Effects of Mandatory Disclaimers in Advertising

Kesten C. Green and J. Scott Armstrong
Journal of Public Policy & Marketing
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Executive Summary
Sellers have long provided disclaimers to inform customers when their products have disadvantages or dangers that are not well-known or obvious. Since the 1930s, lawmakers have sometimes restricted the speech of sellers by requiring them to relay specific messages to potential buyers. The authors asked: Can such restrictions on “commercial speech” be justified?
To answer this question, they first investigated the economics literature and found that the restrictions are inconsistent with economic principles and with knowledge of the roles of sellers, regulators, and buyers. Sellers are motivated to care for buyers by their desire for profits. They want repeat customers and to avoid lawsuits. Buyers are motivated to purchase products that maximize their utility. Regulators know that sellers sometimes try to mislead buyers, but buyers also know this: Caveat emptor is an early lesson for most people. The effectiveness of regulators in protecting buyers is limited by their imperfect knowledge about products and buyers, flawed implementation, unintended consequences, and impure motives.
Second, the authors reviewed the legal history of disclaimers in the United States and found that the laws and judgments restricting commercial speech were based on opinions rather than experimental evidence. Third, they studied findings from behavioral research and found that people tend to resist being told what they should do. They also become less responsible when an authority takes more responsibility.
Fourth, the authors examined evidence from experimental research on the effects of mandatory disclaimers. They found 18 relevant experimental studies. Mandated messages increased confusion for consumers in all the studies and were ineffective or harmful in the 15 studies that examined perceptions, attitudes, or decisions. Despite enormous enforcement costs over roughly 70 years of experience with mandatory disclaimers in the United States, the authors find no experimental evidence to support their use.
Fifth, they conducted an experiment to determine the effects of a disclaimer mandated by the government of Florida. They created two advertisements for dentists offering implant dentistry. They commissioned a research company to show the advertisements to Floridians in a shopping mall. After screening, interviewers obtained responses from 317 participants. One of the advertisers had implant dentistry credentials. Participants who were exposed to the disclaimer more often recommended the other advertiser, who lacked credentials. Women and less-educated participants were particularly prone to choosing the less qualified dentist. In addition, participants who were exposed to the disclaimer drew false and damaging inferences about the credentialed dentist. The authors conclude that (1) consistent with economic theory, mandatory disclaimers fail to increase net welfare and, consequently, (2) proper and independent cost-benefit analyses will indicate that proposed and existing commercial speech restrictions cannot be justified.
Cost-benefit analyses are, however, expensive and vulnerable to manipulation. These practical concerns lead to the question whether it is proper to subject the hard-won right to freedom of speech to cost-benefit analysis in response to opinions that consumers would thereby be protected. The authors recommend that current speech restrictions be removed and that the First Amendment right to free speech be reasserted in the commercial domain.
Kesten C. Green (PhD, Victoria University of Wellington, 2003) is a senior lecturer, International Graduate School of Business, and a senior research associate, Ehrenberg-Bass Institute, University of South Australia. Dr. Green is a Director of the International Institute of Forecasters and is co-owner and co-director of the Advertising Principles public service Internet site (AdPrin.com). He has conducted research on forecasting for public policy making and established the PublicPolicyForecasting.com Internet pages to encourage a scientific approach and disseminate findings. Dr. Green’s work has been published in International Journal of Forecasting, International Journal of Public Opinion Research, Interfaces, and International Journal of Business. His research has been covered in the London Financial Times, and Wall Street Journal. He has advised the Alaska Department of Natural Resources, the U.S. Department of Defense, the Defense Threat Reduction Agency, the National Security Agency (NSA), and more than 50 other business and government clients.
J. Scott Armstrong (PhD, Massachusetts Institute of Technology, 1968) is a Professor at the Wharton School, University of Pennsylvania, and Adjunct Researcher at the Ehrenberg-Bass Institute, University of South Australia. He is a founder of Journal of Forecasting, International Journal of Forecasting, and the International Symposium on Forecasting. He is the creator of forecastingprinciples.com and editor of Principles of Forecasting (Kluwer 2001). In 2004 and 2008, his PollyVote.com team showed how scientific forecasting principles could produce highly accurate forecasts of U.S. presidential elections. He is one of Wharton’s most prolific scholars and the most highly cited professor in the Marketing Department at Wharton. His current projects involve the application of scientific forecasting methods to climate change, the effectiveness of higher education, and the use of the index method to make predictions for situations with many variables and much knowledge (e.g., the effectiveness of advertisements). His book, Persuasive Advertising (Palgrave Macmillan, in 2010) summarizes evidence-based knowledge on persuasion.
Journal of Public Policy & Marketing, Volume 31, Number 2, Fall 2012
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Kesten C. Green and J. Scott Armstrong
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