Arbitration Study Shows That Consumers Who Think They Understand Clauses Twice as Likely to be Wrong

by Jeff Sovern

Last week I posted the abstract for our study, 'Whimsy Little Contracts' with Unexpected Consequences: An Empirical Analysis of Consumer Understanding of Arbitration Agreements.  But the abstract doesn't come close to capturing all the interesting  findings.  I hope to write more about some of them in the days to come. Here's something that didn't make it into the abstract:

Recall that we asked the respondents eight questions that had right and wrong answers. We also asked them how much of the contract they thought they read and had understood.  Respondents who thought they had read and understood more of the contract did get more answers correct than those who didn't.  But those who reported reading and understanding the entire contract still averaged correct responses to only 28% of the questions while those who described themselves as reading and understanding most of the contract clicked the right answer to only 30% of the questions.  In other words, their performance still fell well short of what we would think of as demonstrating understanding. Even worse, those who said they read and understood all the contract were more than twice as likely to record wrong answers as those who reported reading and understanding very little of the contract. Similarly, respondents saying they read and understood all the contract gave twice as many wrong answers as right ones.  It thus appears that those who think they understand arbitration clauses really don't.  That is particularly frightening because consumers who believe they understand the contract may feel more comfortable relying on that supposed understanding--but such confidence would be misplaced.