The Unintended Effect of Disclosures

Why a disclosure of a conflict of interest makes people more, not less, trusting of a blog’s product and service recommendations.

The Unintended Effects of Disclosures

JUST AS THE U.S. Securities and Exchange Commission requires investment advisors to disclose interests they have in the companies they recommend to investors, the U.S. Federal Trade Commission (FTC) requires bloggers to disclose to their readers and followers any potential conflicts of interests (COI) regarding the products and services they recommend, such as commissions or other financial incentives from companies. But does the presence of a disclosure make readers more skeptical of a blogger’s recommendations?

Sunita Sah, assistant professor of management and organizations at Cornell University’s SC Johnson Graduate School of Management in Ithaca, New York, has explored this question with Prashant Malaviya and Debora Thompson, associate professors of marketing at Georgetown University’s McDonough School of Business in Washington, D.C. They analyzed more than 150,000 posts on 60 fashion and beauty blogs over two years—of these posts, only 350 disclosed a potential conflict of interest. The research team discovered that posts with disclosures attracted more positive reader comments than those without.

In an additional experiment, Sah, Malaviya, and Thompson asked study participants to read various blog posts— some with disclosures and some without. They then determined how likely participants were to share the information. The researchers found that participants were more likely to share posts that included the disclosures, especially if those disclosures were included at the end rather than at the beginning of posts.

The researchers deduce that because people often look for quicker ways to process and react to large amounts of information, they view disclosure statements not as warnings, but as shorthand for expertise—what the researchers call “expertise cues.” However, in this study, participants who exhibited a greater tendency to take time to deliberate over information were less trustful of that information. Their deliberation mitigated the effect of expertise cues, so that they were less likely to share posts.

The researchers were troubled by the fact that so few of the posts in their sample contained disclosures at all. “While we do not claim that these bloggers did not disclose a COI when they should have disclosed,” they write, “industry analysts predict that an estimated 93 percent of online sponsored content violates FTC guidelines for disclosing sponsored content.”

In any case, their findings reveal a potential risk to consumers, particularly those who might follow financial or medical advice online. “If disclosure is there to protect consumers, it’s having an adverse effect, which is probably not what the policymakers intended,” says Sah in the Cornell Chronicle. “A better approach would be to place the burden of managing conflicts of interest on advisers or regulators to encourage reduction or elimination of such conflicts.”

“Conflict of Interest as an Expertise Cue: Differential Effects Due to Automatic Versus Deliberative Processing” was published in July in Organizational Behavior and Human Decision Processes.