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SmarterInformation,

SmarterConsumers

By - Richard H. Thaler and WillTucker

Magazine - HBR- Jan-Feb 2013Presented by Dr. Chandan for

WASS on 18/4/2013Presidency College

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Content of Presentation

Introduction Open Government Smart Disclosure in the Private Sector What Smart disclosure looks like Choice Engines Formats Principle

Regulations Empowering Consumers Conclusion

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Introduction

We are constantly confronted withinformation that is highly important butextremely hard to navigate or understand?( Information disclosure).

Many consumers including highly educatedpolicy experts and government officials would not absorb all information sent tothem/made available to arrive at a decisionthat maximize their self interest.

Repeated attempts to improve disclosure,including efforts to translate complexcontracts into Plain English have met withmoderate success.

This indicates the fundamental difficulty ofexplaining anything complex into simple

terms.

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Authors believe that potent mix ofmodern technology and newgovernment policy is about to

transform disclosure and with itthe working of many parts of theeconomy.

Increasingly, government owned

data and private companydisclosures will be made available inmachine readable format spurringthe growth of new services ChoiceEngines technologies thatinterpret this data.

For businesses this can be a threatand a huge opportunity.

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Ex: Companies that gain market sharethrough deception or just by takingadvantage of consumer laziness - may loseout as better disclosure makes marketmore efficient.The biggest winners will be those thatbuild products and services using the vastnew data resources particularly, choice

engines that help consumers make betterdecisions. Consider the history of GPS After 2000,

the GPS data was made freely available topublic, entrepreneurs took it from there.

Ex: Shoppers Smartphone, Golfers watch. http://www8.garmin.com/golf/

Todd Park, the US chief technology officerestimated that GPS added $90bn in value

to US economy in 2011.

http://www8.garmin.com/golf/http://www8.garmin.com/golf/

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OpenGovernment

The share- the-data approach at theheart of the GPS success is now anofficial policy in the US government.

In 2009, President Obama issued amemo on Transparency and OpenGovernment stating that informationcollected and held by the govt. is anational asset and to disclose rapidly

in forms that the public can readilyfind and use. Early initiatives such as data.gov a

web based clearing house formachine readable government datasets), the administration began toestablish a policy framework for howconsumers and businesses interactwith and disclose information aboutproducts and services.

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By combining unprecedentedaccess to data andtechnological advances, policymakers and business leadershave the opportunity tounleash a rare virtuous circle

that benefits consumers,incumbent businesses, andentrepreneurs. No moderneconomy can afford to leave

that value on the table.

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Ex: Entrepreneurial success of BrightScope(2008) employer-sponsored defined-contribution retirement plans known in theUS as 401(k)- subsection of internal revenuecode.Outcome - There is a lesson here: Whenfirms are required to disclose things, theysometimes discover vulnerabilities aboutthemselves that can be remedied.

By mid 2010, nearly 30 agencies begun torelease high value data sets such as foodand drug administration recall, statedepartment travel warnings, airport on-timeperformance report etc.

At White House summit, entrepreneurswere asked after each demo as to what dataset would you want to access to, and what

would you do with it? Their answers highlighted numerous

potential opportunities in health care,finance, energy, education and othersectors.

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Smart Disclosurein Private Sector

By making the necessary data availableto choice engines, we can get the mostout of all the new variety we face, fromcomplex mortgages to smart electricity

meters.Ex: Amazon and Netflix can help you decidewhich book to read or movie to watch,other choice engines can help you withdecisions that have much higher stakes.

In US , federal laws and regulationsrequire the disclosure of product,service and other information in manydomains. In some cases, disclosures arestatements.

Ex: Product Cigarettes disclosure arestatements Warning: Cigarettescauses strokes and heart diseases.

In other cases, disclosure are numbers Ex:Price (Interest rates of Mortgages), basicproduct characteristics (calories) toGovernment ratings( crash safety

scores)

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In some cases disclosures arenotifications When companies orinstitutions take certain actions(charging overdraft fees or holdingelections at publicly traded companies).

Sometimes the mere disclosure ofunsavory characteristics is enough tochange the behavior of firms andindividuals.

Ex: Disclosure of trans-fat content onnutrition fact labels came into effect in2006.

Even subtle changes in how informationis presented can have significant impact.

Ex: Labeling a food 90% fat free can have adifferent effect than calling it 10% fat.

Ex: Retirement plan statements were topresent savings in terms of monthlyincome that would be available inretirement.

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Ex: Financial professional give betterratings to investments with aestheticallypleasing annual reports.

The goal of good electronic disclosureregime should be to ensure thatconsumers know what they are gettingand can compare products.

Thaler and the legal scholar CassSunstein put forward the RECAPframework.. The US calls it SmartDisclosure that enable consumers tomake informed decisions. The Britishfocuses on individual banking, energyand mobile phone usage data as

midata . Companies thus have real incentives to

invest time, energy and talent incompeting through obfuscation.

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What SmartDisclosure Looks Like

In 2011, the consumer privacy bill ofrights established the right ofconsumers to access their personal

data. Ex: Tesco Report by World Economic Forum

titled Rethinking personal dataargues that personal information

represents a new asset class. The US smart disclosure and UK

midata regimes may serve asmodels for data policies around theworld.

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Choice Engines

Smart disclosure falls in 4 broadcategories

1) Government release of data itcollects on products and services

Ex: For instance, the Department ofHealth and Human Servicesreleases hospital quality ratings , the

Security and Exchange Commissionreleases public company financialfilings in machine-readable formatsat XBLR.SEC.gov, or the Departmentof Education puts data about morethan 7,000 institutions online in aCollege Navigator for prospectivestudents.

http://www.hospitalcompare.hhs.gov/http://xbrl.sec.gov/http://collegenavigator.ed.gov/http://collegenavigator.ed.gov/http://xbrl.sec.gov/http://www.hospitalcompare.hhs.gov/

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2) Government release to individuals oftheir personal data ( such as socialsecurity contribution and tax

returns)For instance, when the Departmentof Veterans Affairs gives veteransaccess to health records using

Blue Button or the IRS providescitizens with online access to theirelectronic tax transcript.The work of BrightScope liberatingfinancial advisor data and 401(k)data has been an early signal ofhow data drives the innovationeconomy .

http://www.va.gov/bluebutton/http://radar.oreilly.com/2011/05/brightscope-financial-adviser-data.htmlhttp://radar.oreilly.com/2011/05/brightscope-financial-adviser-data.htmlhttp://radar.oreilly.com/2010/11/the-story-of-brightscope-data.htmlhttp://radar.oreilly.com/2010/11/the-story-of-brightscope-data.htmlhttp://radar.oreilly.com/2010/11/the-story-of-brightscope-data.htmlhttp://radar.oreilly.com/2010/11/the-story-of-brightscope-data.htmlhttp://radar.oreilly.com/2011/05/brightscope-financial-adviser-data.htmlhttp://radar.oreilly.com/2011/05/brightscope-financial-adviser-data.htmlhttp://radar.oreilly.com/2011/05/brightscope-financial-adviser-data.htmlhttp://radar.oreilly.com/2011/05/brightscope-financial-adviser-data.htmlhttp://www.va.gov/bluebutton/

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3) Government facilitated electronicdisclosure by private sector companiesof price or attribute data on productsand services or private companyreleases information about productsor services in machine readableformats . Entrepreneurs can then use that datato empower consumers. For instance,

both Billshrink.com and Hello Wallet may enhance consumer financedecisions.

4) Government facilitated release toconsumers of personal data held by

the companies providing the productsand services or private companyreleases personal data about usage toa citizen

http://billshrink.com/http://hellowallet.com/http://hellowallet.com/http://billshrink.com/

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For instance, when a power utilitycompany provides a householdaccess to its energy usage data

through the Green Button or whenbanks allowing customers todownload their transaction historiesin a machine readable format to useat Mint.com or similar services. Aswith the Blue Button for healthcaredata and consumer finance, theWhite House asserts that providingenergy consumers with secureaccess to information about energyusage will increase innovation in thesector and empower citizens withmore information.

http://www.readwriteweb.com/archives/green_button_open_data_just_created_an_app_market_for_12m_us_homes.phphttp://www.readwriteweb.com/archives/green_button_open_data_just_created_an_app_market_for_12m_us_homes.phphttp://mint.com/http://mint.com/http://www.readwriteweb.com/archives/green_button_open_data_just_created_an_app_market_for_12m_us_homes.phphttp://www.readwriteweb.com/archives/green_button_open_data_just_created_an_app_market_for_12m_us_homes.php

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So far, success has come in the firsttwo categories.

Ex: Veteran Administrations Blue

Button initiative allows veterans todownload their VA hospital recordson a smart phone or computer.

Ex: When cities began making thelocation of trains and buses availablein real time, app developers werequick to launch products forcommuters.

Traffic Genie is here to save you fromBangalore traffic woes [App]

http://www.mobigyaan.com/traffic-genie-is-here-to-save-you-from-bangalore-traffic-woes-app

http://www.mobigyaan.com/traffic-genie-is-here-to-save-you-from-bangalore-traffic-woes-apphttp://www.mobigyaan.com/traffic-genie-is-here-to-save-you-from-bangalore-traffic-woes-apphttp://www.mobigyaan.com/traffic-genie-is-here-to-save-you-from-bangalore-traffic-woes-apphttp://www.mobigyaan.com/traffic-genie-is-here-to-save-you-from-bangalore-traffic-woes-apphttp://www.mobigyaan.com/traffic-genie-is-here-to-save-you-from-bangalore-traffic-woes-apphttp://www.mobigyaan.com/traffic-genie-is-here-to-save-you-from-bangalore-traffic-woes-apphttp://www.mobigyaan.com/traffic-genie-is-here-to-save-you-from-bangalore-traffic-woes-apphttp://www.mobigyaan.com/traffic-genie-is-here-to-save-you-from-bangalore-traffic-woes-apphttp://www.mobigyaan.com/traffic-genie-is-here-to-save-you-from-bangalore-traffic-woes-apphttp://www.mobigyaan.com/traffic-genie-is-here-to-save-you-from-bangalore-traffic-woes-apphttp://www.mobigyaan.com/traffic-genie-is-here-to-save-you-from-bangalore-traffic-woes-apphttp://www.mobigyaan.com/traffic-genie-is-here-to-save-you-from-bangalore-traffic-woes-apphttp://www.mobigyaan.com/traffic-genie-is-here-to-save-you-from-bangalore-traffic-woes-apphttp://www.mobigyaan.com/traffic-genie-is-here-to-save-you-from-bangalore-traffic-woes-apphttp://www.mobigyaan.com/traffic-genie-is-here-to-save-you-from-bangalore-traffic-woes-apphttp://www.mobigyaan.com/traffic-genie-is-here-to-save-you-from-bangalore-traffic-woes-apphttp://www.mobigyaan.com/traffic-genie-is-here-to-save-you-from-bangalore-traffic-woes-apphttp://www.mobigyaan.com/traffic-genie-is-here-to-save-you-from-bangalore-traffic-woes-apphttp://www.mobigyaan.com/traffic-genie-is-here-to-save-you-from-bangalore-traffic-woes-apphttp://www.mobigyaan.com/traffic-genie-is-here-to-save-you-from-bangalore-traffic-woes-apphttp://www.mobigyaan.com/traffic-genie-is-here-to-save-you-from-bangalore-traffic-woes-apphttp://www.mobigyaan.com/traffic-genie-is-here-to-save-you-from-bangalore-traffic-woes-apphttp://www.mobigyaan.com/traffic-genie-is-here-to-save-you-from-bangalore-traffic-woes-apphttp://www.mobigyaan.com/traffic-genie-is-here-to-save-you-from-bangalore-traffic-woes-apphttp://www.mobigyaan.com/traffic-genie-is-here-to-save-you-from-bangalore-traffic-woes-apphttp://www.mobigyaan.com/traffic-genie-is-here-to-save-you-from-bangalore-traffic-woes-app

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Ex: Travel agents have been

largely replaced by websitessuch as Expedia and Travelvelocity. These services arecomplemented by

aggregators such asKayak.com.Ex: Not sure whether you

should buy a new laptop now

or wait until the price drops?Go to Decide.comhttps://www.decide.com/

https://www.decide.com/https://www.decide.com/

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Worried that a subscription you nolonger want will automaticallyrenew? Sign up for Bill Guard.

Want to make sure your purchasesmeet certain environment and socialconsciousness standards? UseGoodGuide to help you pick

products from sunscreen to peanuts.

Third party intermediaries like theseare competing with one another to

present consumers with relevantinformation in user friendly ways.

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Ex: Grocery store shoppers clubs Many store offer customers

discounts on certain items as an

incentive to join. Store benefit by learning about

customers purchasing habits -knowledge they can use.

This data could have multitude ofuses for customers.

Ex: Have a family member allergic toglutten? Get a choice engine analyzeyour food purchases and highlight

items to avoid.Ex: Want to lose weight? Get a choiceengine to suggest which foods todrop and what to replace then with.

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When customers have access to andcontrol of their personal data companies will begin to respond to thedemand of individuals instead ofaggregate markets.

Disclosure of user data raises theimportant issues of privacy and datasecurity.

Efforts to incorporate personal data intonew choice engines are already underway.

Ex: Green button initiative online accessto personal energy usage data.

Third party intermediaries like these arecompeting with one another to presentconsumers with relevant information inuser friendly ways

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It is not the lack of technology or lack ofdemand for information or lack ofinnovative ideas or price of data storageand processing power the missingingredient is easy access to data .

In many contexts, choosing the rightcalling plan, a choice engine needs 2kinds of data.

First terms of the sale: price,penalties, length of time to pay and soforth.

Second usage data

Ex: Bill Shrink - that analyze your cell-phone-usage data and provide a cost-saving recommendation for your nextcontract.

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Billshrink helps people compare credit cards

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Search one and done

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Help people to makegood choices about food

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Newly designed automobile fueleconomy labels

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Data Science extracting meaning and services from data

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Formats Pages of fine print that we now call

disclosure to be replaced bymachine readable files.

Sellers need to report the details oftheir price and contractual terms in amanner that choice engines candigest, translate and analyze.

Ex: SEC (2009) requiring corporations,mutual funds and credit ratingagencies to report information ineXtensible Business ReportingLanguage(XBRL) such formats areused to improve investment decisionmaking and help analysts, auditors,investors and regulators.

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Principle Regarding disclosure of personal

data if a firm is collecting usagedata on an individual, that person

has a right to access the data. In Britain, consumers already have

the right to receive the data in anintelligible format.

Unfortunately businesses havechosen to interpret Intelligible tomean in a large printed documentthat is of little use to anyone.

Parliament is now considering a lawthat would replace intelligible withmachine-readable and upload able.

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Regulations

The challenge for policy makers will beto develop measures that improvesmart disclosure without imposingsignificant costs on firms.

A primary principle of regulation shouldbe ensuring that choice enginesbusiness models are transparent.

Choice engines have strong incentives

to prevent sellers from manipulatingpublished reviews (think of Yelps Stingoperations).

Profit aggregators or nonprofits such asConsumer reports could use tacticslike secret shoppers to see what kind ofadvice choice engines are providing.

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Another issue that may require regulatoryintervention.

Ex: Mattresses usually have long complicatednames like Ultra soft yet firm plush

posture- friendly fit for a queen deluxe? It is nearly impossible to compare the

mattress you see at Macy with the one youtry at Joes mattress warehouse.

In principle, smart disclosure could solvethis problem if manufacturers wererequired to identify which products areequivalent., but in practice any such rulecan be evaded by making inexpensivecosmetic changes to the models sold tolarge retailers, rendering the new versionstechnically unique.

Authors think this problem deserves moreattention and hope technology andambitious choice engine entrepreneurs cansolve it.

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EmpoweringConsumers

Smartphone's, adjustable ratemortgages and credit cards provide uswith more options but also make itmuch harder to sift through the choices

and make good decisions. Technology offers society an

opportunity to help consumers makethe best of the rich variety of optionsavailable to them.

Smart disclosure alone wont makepeople better decision makers but itwill get machines and complex optionsworking for consumers, just as big datacan help companies improve business

strategy. This innovation has the potential to be a

win-win-win.

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Consumers can win by getting the productsthat best suit their preferences.

Businesses can win by competing on highquality products at good prices, without

the risk of losing out to less scrupulousfirms that compete through deception.Entrepreneurs and innovators can win by

devising new ways of servingconsumers.

Another potential benefit betterdisclosure and the accompanyinggrowth of choice engines offer theprospect of revolutionizing the waygovernment interact with citizens andbusinesses.According to estimates by the office ofmanagement and budget the USgovernment requires individuals andcompanies to spend about 9 bn hrsfilling out paperwork each year.

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Conclusion

The rise of choice engines will domore than create super shoppers. Itwill make markets more efficient,

create new businesses and improvethe way government serve theircitizens. Big Stuff.

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