by Jeff Sovern
Some readers of our blog will no doubt be familiar with Nobel prize-winning physicist Richard Feynman from his popular books, What Do You Care What Other People Think? or Surely You're Joking, Mr. Feynman! Others will remember him from his service on the panel that investigated the Challenger disaster. His relevance to arbitration stems from his quote about the difference between knowing the name of something, and actually knowing what that something is. See Richard P. Feynman, What Do You Care What Other People Think? 14 (1988)( “I learned very early the difference between knowing the name of something and knowing something.”). Unfortunately, that appears to describe many of the respondents to the St. John's Arbitration Study.
Here's what I mean. After showing respondents a contract with an arbitration clause, we asked:
If you and the credit card company have a dispute that is too large to be brought in a small claims court, did the contract you just saw say you have agreed to arbitrate it?
43% said it did, though a majority either didn't know or said the contract did not provide for arbitration. The contract had included a bold-face reference to the arbitration clause on page two, and the clause itself appeared in bold partly on page six and partly on page seven, so that in all, the arbitration clause was referred to or appeared in bold on three of the seven pages of the contract. In addition, some of its terms were printed in italics and ALLCAPS, making it even more conspicuous. In light of all that, it may not be surprising that 43% of the consumers noticed the arbitration clause.
But as Feynman noted, that doesn't mean they know what it meant. Of the 43% who said that the contract provided for arbitration, 61% also believed that consumers would have a right to have a court decide the dispute, despite the fact that the contract said in bold, italics, and ALLCAPS that they wouldn't. Nearly a fifth of those who believed that the contract mandated arbitration checked “I don’t know” when asked if consumers would have a right to sue in court. In short, only 59 respondents—less than 9% of the total—realized that the contract both provided for arbitration and precluded litigation in court. Similarly, of the 43% who understood that the contract specified that disputes would be resolved through arbitration, only 80 realized that they could not obtain a jury trial, meaning than only 12% of the total understood both that the contract provided for arbitration and that it precluded a jury trial of disputes. An even smaller subset of the 43%, 46 (less than 7% of the total), recognized that the contract foreclosed participation in a class action. All this even though the contract instructed respondents in bold that “It is important that you read the entire Arbitration Provision section carefully.” In short, our study, 'Whimsy Little Contracts' with Unexpected Consequences: An Empirical Analysis of Consumer Understanding of Arbitration Agreements suggests some consumers may know the word arbitration, but few know what it means.