Monday, June 22, 2015

Reading list: advertising atypical results

Ahmed E. Taha, Selling the Outlier, forthcoming in the Journal of Corporation Law.
Advertisements for products ranging from weight-loss programs to mutual funds regularly feature the results of people who have used the product.  However, these advertisements often present the results only of people who had an atypically positive experience.  These advertisements harm consumers and investors, who greatly underestimate the advertised results’ atypicality.  Because advertisements of past results are used in a wide range of products, they are regulated by a number of federal agencies.  These agencies have taken different regulatory approaches to advertisements of atypical results, primarily requiring them to include additional disclosures.  This article presents evidence that these and other disclosures cannot prevent advertisements of atypical results from deceiving consumers and investors.  Indeed, the very purpose of these advertisements is to mislead people regarding their own likely results.  Thus, in light of the harm these advertisements cause and the minimal useful information they provide, the prohibition of advertisements of atypical results should be seriously considered.
Good overview of the empirical evidence that testimonials about top experience distort consumer understanding, and that disclosures of atypicality generally don’t work because of various cognitive biases and innumeracy.  Taha would prefer to ban advertising atypical results at all; is there any room in that for Subway’s Jared commercials touting extreme weight loss?

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