Episode Transcript
[00:00:00] Speaker A: Imagine a justice system built on rigorous evidence, not gut instincts or educated guesses about what works and what doesn't.
More people could access the civil justice they deserve.
The criminal justice system could be smaller, more effective and more humane.
The Access to Justice Lab here at Harvard Law School is producing that needed evidence and this podcast is about the challenge of transforming law into an evidence based field.
I'm your host Jim Greiner and this is proof Over Precedent.
This week we're bringing you a student voice.
[00:00:37] Speaker B: Doyeon park is a student at Harvard Law School. In the Access to Justice Lab seminar, she's interviewing Professor Oren Bar Gill, formerly Professor of Law at Harvard, now the John Edwards Sexton professor of Law and Economics at New York University School of Law and a specialist in consumer contracts.
The topic of their interview is how access to justice problems inhibit improvement of consumer contracts.
[00:01:00] Speaker C: As part of my work at Access to Justice Lab at Harvard Law School, I've been researching how the structure of consumer contracts can affect consumers ability to seek remedies after data breaches and access justice. In particular, how to contract provisions such as forced arbitration clauses and liability limitations can make it difficult for consumers to access legal representation and impact vicious cycle of data breaches and their complexity in itself how it can confuse consumers.
So to explore these issues, I'm very honored to welcome Professor Oren Bargil to today's podcast. Professor Barghil is a John Edward Saxton professor of Law and Economics at NYU Law School and he's a leading scholar in the law and economics of contracts and consumer markets. He's the author of Seduction by Contract Law, Economics and Psychology in Consumer Markets and also recently published Algorithmic Protecting People in the Age of Artificial Intelligence with Professor Sunstein, along with numerous influential articles in the field. I'm very honored to have you here. Professor.
[00:02:03] Speaker D: It's a pleasure to be here.
[00:02:06] Speaker C: So I would like to first start with the question regarding consumer misconception and data contracts. And in your research you discuss how sellers can often use the consumer data to price discriminate them based on the consumer's willingness to pay. That reflects both the consumer's preferences but also misconceptions.
And when we take a look at the data breach sin, the online services first appear as free most of the time, but consumers are effectively paying with their data too.
So how should we think about the ways consumers are valuing their data? And they're thinking about the risks associated with the static collections.
[00:02:48] Speaker D: So it is true that consumers in many markets are giving away their data.
I think the main problem Here is that consumers suffer from a misperception about the risks associated with giving away data.
What I mean by that is that as consumerism, when we sign away or give companies the ability to use our data, we are not always fully aware of what they can do with this data.
And so oftentimes we might think the cost is relatively small to us. We give the data and we get free services. But in fact, there are costs that we might not be aware of. And one of the costs that we highlight in the book Professor Sunstein and I is how this data can be used in consumer markets in order to price discriminate, namely to charge us prices that are just below our willingness to pay the maximum amount that we think this product or service is worth to us. And as you mentioned, this willingness to pay might itself suffer from the misperceptions that we might be, we might end up paying more than the product or service is actually worth to us.
I will say beyond this, in addition to the problem that consumers might underestimate the risks from giving away their data, oftentimes they might not even be aware of the fact that they are giving away their data. So all of the rights and powers that these companies have are often hidden in that kind of the fine print of some kind of terms and conditions or privacy policies that consumers just don't read and might not even be aware of.
[00:04:34] Speaker C: That makes a lot of sense. So it's a double layer of them perhaps underestimating their own data values, but at the same time, they might not even be aware of what they're giving as a payment to the services of data companies.
[00:04:49] Speaker D: Yes, that's correct. It is important to note though, that even though these problems that we've just discussed are important problems, it is also true that for many consumers, giving away their data is not really a big problem in the sense that we have this well known privacy paradox. People say that they really care about their, their privacy, but in fact, when we ask them, how much would you be willing to pay in order to keep your data private? Okay, so to pay with dollars rather than to pay with data, then most people say, no, we rather give away the data. We don't want to pay anything with dollars. So some of it is they're willing to pay with data because they really don't understand the cost of paying with data. But some of it is they really don't think, at least some consumers don't think that this is a big, it's a big cost. Now again, I would say the people you of course want to keep their medical information or their financial information private. But with respect to a lot of other things that we give away in terms of data privacy, it's possible that kind of many consumers really don't care as much.
[00:05:52] Speaker C: That's really interesting. Would you say it's also in addition to consumers not understanding the terms or not caring at all about how their data could be used? Potentially they don't understand the cost of the data breaches or just that there's not a lot of alternatives in terms of these digital services that they're forced into these monopoly services.
[00:06:15] Speaker D: Yeah. So the question of monopoly versus competition is a really interesting and important one.
So it is possible that you have a monopoly in a certain kind of digital market or consumer market, and consumers are saying, this product or service is so important to me, and I don't have any other alternative, then I'm willing to sign anything that the company will give us. So, yes, that is a concern.
But we do see many markets where there is competition, and competition can be just two companies or three companies offering similar services.
And yet in all of these, in these markets and all of these companies, they all offer the exact same terms. Mainly all of the companies are using your data or making use of your data.
And so some people would say this means that consumers don't have any choice. So there might be two or three companies, maybe even more, but all of them are offering the exact same terms and conditions or privacy policies that take your data. And so people say that means that consumers don't have a choice. I'm. I'm skeptical of this argument for the following reason.
So the fact that all of the companies are offering the same terms, including with respect to data privacy, is an equilibrium outcome, and it's an outcome of the misperception.
So the problem here is not that we don't have any choice, or we as consumers don't have any power to choose between different companies or to take our business to firms that treat us more nicely. It's just that we use that power that we have as consumers for different things.
Okay, so we want to choose a company that will give us a higher quality product or make us charge us a lower price. We don't choose between these two companies based on their data privacy policies.
Now, it could be that we don't choose based on data privacy policies because we don't care, or it could be because of that misperception.
So if the reason why we don't exert our market power, our bargaining power as consumers on this issue of Data privacy. If the reason for that is the misperception that we don't understand how important that is, this in fact is a problem and a reason for the law to intervene. Okay, but note that the core problem is the misperception. It's not the fact that there is a monopoly or oligopoly or a very limited competition,
[00:08:37] Speaker C: because the terms in the market are universal in a way that they're all lemon terms. And they're having this first arbitration clauses, class waivers. It's not like we're choosing one term over the other, but more so we're just choosing one service over the other.
[00:08:52] Speaker D: We're choosing one service over the other. And the services are competing over our business. But when they're competing over our business, they're not saying in their advertising, come buy for me because we have a nicer arbitration clause, no class action waiver data, better data privacy policies. What they're saying is, come buy from me because we're giving you a cheaper product or service or a better product or service on some other dimension that the consumer cares about.
Okay, so consumers have the power. There is competition. Consumers are just choosing to exercise their power over other dimensions of the product or service and not over arbitration clauses or data privacy provisions. And that could be because consumers are just making a mistake. They don't understand the importance of those provisions. Okay, but the issue is the mistake. It's the misperception, and it's not the kind of, not necessarily the absence of bargaining power
[00:09:40] Speaker C: that makes a lot of sense. And I think that sort of connects to highlight the more responsibilities companies potentially would have in terms of explaining these terms, explaining what the consumers would be bearing as a risk of sharing their data.
And I think this connects to your point about how when in terms of contract design, the disclosure is really important.
So you discussed that disclosure mandate as one possible response to fix these kind of market failures. And how do you think disclosure requirements should evolve, if it should be evolved at all in terms of this digital market data bridge context?
[00:10:17] Speaker D: Yeah. So disclosure is potentially helpful in situations where information can be provided to consumers in a very kind of simple way.
So, for instance, think about hygiene ratings in restaurants A, B, or C. That's very simple for consumers to know. If the restaurant got great C, I don't want to eat there. It's risky. Some people would say, and I've written myself that maybe even consumer markets, like credit markets, when you have something very salient, like the apron on a certain type of loan, consumers understand that a lower APR is better than a higher apr. Okay. And so this type of disclosure is helpful?
It is. It's harder to see how you can generate a kind of simple disclosure digestible by kind of the average consumer. In the context of these complex terms like arbitration clauses and data privacy policies, people have tried to come up with simplified versions, simple disclosures, but I'm a little bit skeptical about this. So I'm not sure that there is an easy disclosure fix in these areas.
And if we can't fix the problem with kind of the softer legal intervention of mandatory disclosure, then lawmakers should think of more heavy handed interventions. If we think that there is a practice that is really harmful to consumers, then we should go ahead and ban it and not just rely on disclosure.
Unless we really believe that disclosure can work.
[00:11:45] Speaker C: That's really interesting because when I was working on this research, my hypothesis was that because these terms are so complex, not giving a lot of legal remedy options for consumers, it's incentivizing the companies in a way to leverage this misconception, leverage this underestimation of consumers on data because they wouldn't be suing the companies or there wouldn't be feasible means to sue them even if they wanted to.
So to hear that there was movement to make this disclosure more consumer friendly is really interesting.
Would it be the issue of technology that made it complicated for the companies to adopt this, or was it a policy issue that was difficult to change the disclosure requirements?
[00:12:30] Speaker D: So I'm not sure I'm understanding the question, but I don't think it's technology per se in the sense that there is a lot of complexity involved in kind of terms and conditions, general terms and conditions, or privacy policy terms and conditions, or arbitration policy terms and conditions.
They are just complicated. And it's not always easy to boil it down to something simple like an ABC restaurant hygiene grade or an apr.
Now there is an argument, and I've made that argument in my kind of first book, Seduction by Contract, that a lot of the complexity that we see in these contracts or terms and conditions is manufactured. It's artificial. So companies have an incentive to make things complicated so that we, we don't understand and we make these mistakes. Now is it a way, is there a way to simplify, to cut through the complexity or to ban complexity?
Perhaps there is. So this is another type of intervention in the market which is a little bit more heavy handed. And we tell companies there are things that you cannot do. Okay. It's just, it's too complicated. If you want to have different types of Data policies, there are like three options, and you should choose among these three options, and that's it.
So we might be able to cut through this complexity and have something like an ABC grade for how. How harmful to privacy a certain policy is. But I don't think it's a. I don't think it's a technology thing. It really, it's. It's more of a strategic, deliberate idea or a choice made by the companies. To be clear, many of these things are complicated. The companies want to have a lot of dimensions and freedoms to choose exactly what they do with our data and how they use it. But a lot of the complexity is also superfluous.
[00:14:18] Speaker C: In addition to that, it's the fact that sort of the competitors are not competing on the scene of better data terms, better contractual complexity. It's just there's another factor in the market that's more important that they're investing money on in terms of competitive edge.
[00:14:34] Speaker D: That is true, although there have been kind of examples in certain consumer markets where consumer attention has focused on issues of complexity. So, for example, in the kind of the credit card market, this market was in, in the past and to some extent still now, but it was notoriously, it was notorious for the complexity, the number of different fees and interest rates and penalty rates that were charged or were set for consumers. But then consumers became troubled by this. And when consumers become troubled by the complexity, then we see the market respond. And so we saw various kind of credit card issuers coming up with these advertisements that say, we don't have any hidden fees in our card. You just play one interest rate. That's the only thing. Okay? And that's it. And so there are situations, there are examples where consumers become worried about kind of the complexity, and then the market responds by cutting through the complexity and avoiding it. By the way, that's another indication that the complexity is not economically necessary for companies. They can get rid of it if they need it, if they need to. But it really depends on what consumers care about. So if consumers understand that complexity is harmful to them and they can demand a simpler product, and then the market will provide it,
[00:15:46] Speaker C: that makes a lot of sense. So the complexity of the contract, it's not the companies are necessarily depending on, and it's something that could change if the consumers are reacting on it. And that's the main factor of their demand function in terms of using or choosing the companies in general.
[00:16:04] Speaker D: Correct.
[00:16:05] Speaker C: Makes a lot of sense. And I wanted to ask one last general question for looking ahead. How do you see the Future of consumer protection. As the digital markets are evolving, a lot of AI services, virtually health service, financial service, a lot of them are being on the digital platform. And would you say there should be different expectations or goals for consumer protection?
[00:16:31] Speaker D: Yeah, this is a real, a really good question. And this is a brave new world. And I think where I would be focusing my attention is in the algorithms and AI that are developing on the consumer side. Okay. So we know that the sellers are using this technology and AI in order to, as we say, to price discriminate and differentiate and maximize their profits using our data. But we're also seeing new technology and tools and algorithms that are being developed to help consumers. It's all kind of agentic AI that will help consumers navigate the complex marketplace. And so one of the interesting lawsuits that I am currently following is the lawsuit that Amazon brought against Perplexity. So Perplexity had this AI that was supposed to help consumers do the shopping on Amazon's website and find the best deals, higher quality, lower prices. And Amazon was really freaking out over this and they brought a lawsuit against Perplexity. By the way, one of the claims in that lawsuit was that the terms and conditions were being violated because humans were supposed to be shopping on Amazon website, not AI agents doing the shopping on Amazon website. I think just yesterday or just maybe a couple days ago, there was a preliminary injunction granted to Amazon in this case.
Okay. So I'm not sure how the case will end, but this does not bode well. And just in terms of your question, I think that if we're thinking about consumer protection or what is the best way to protect consumers in this new technological landscape, I think what we want is a series of legal tools that will enable the AI agents like Perplexities Agent to actually do the work of helping consumers prevent the terms and conditions or other kind of legal doctrines from stopping the algorithms that can can work to help consumers.
[00:18:30] Speaker C: That makes a lot of sense. And that's really interesting too because in terms of access to justice, I was directly suggesting, oh, we should incorporate more of like AI agents who could help with consumers figuring out these complicated data breach claims. But to think that even before going to the litigation, the prior stage, AI agents could help consumers rebalance this power difference. That makes a lot of sense. And that's so interesting that there is a lawsuit going on right now.
And before we wrap up, I wanted to ask if there be anything we didn't cover today that you think is important for listeners to think about consumer contracts, data or access to justice in general,
[00:19:12] Speaker D: I think that kind of the issue of arbitration which we touched upon is of course front and center in a lot of the kind of the access to justice context we are currently working under. Kind of the jurisprudence of the Supreme Court that allowed class banning arbitration clauses in consumer contracts. That and that's a problem.
So there are entrepreneurial kind of lawyers, plaintiff side lawyers who are trying to find a way around this. But I think that's a major issue still to be worked through.
[00:19:42] Speaker C: That makes a lot of sense. And I definitely agree that some sort of legal scheme change, either in part of the Congress or maybe in part of the Court, should happen.
And that could help the consumers too.
And thank you so much for your time and amazing insights today. Professor Farkil, really honored to have you and really enjoyed the conversation too.
[00:20:05] Speaker D: It's my pleasure. I'm glad to be here.
[00:20:08] Speaker A: Proof Over Precedent is a production of the Access to Justice Lab at Harvard Law School.
Views expressed in student podcasts are not necessarily those of the A J Lab.
Thanks for listening. If we piqued your interest, please subscribe wherever you get your podcasts. Even better, leave us a rating or share an episode with a friend or on social media.
Here's a sneak preview of what we'll bring you next week.
[00:20:32] Speaker E: This podcast is an extension of my blog post that you can find on the a website which goes into how courts at all levels of government, federal, state and local are facing severe cybersecurity challenges that are sometimes really hindering litigants access to justice.
The blog post talks about two major recent hacks of the federal judiciary's case management an electronic case filing system known as cmecf, of which the public facing aspect is the PACER system.
