Food for thought
When asked to pick a chicken sandwich, study participants chose the lowest-calorie option if calorie counts were presented prominently. But simply reminding people to consider nutrition also inspired healthier choices.
Urminsky and Goswami find that “visually salient” calorie labels—those featuring the calorie count prominently, such as by using bigger fonts or bright-red lettering—“are more effective in reducing calorie choices than standard industry disclosures.” But so were noninformative “mere reminders.”
“Our argument is that mere disclosure—such as sticking calorie count in a small spot somewhere on the package—most of the time is not going to have much of an effect,” Urminsky explains. “Putting it in in a really noticeable way is likely to have a pretty substantial effect.”
But the effective labeling “works primarily as a reminder, prompting people to consider nutrition, rather than by providing new information.”
It’s a subtle but important distinction, says Urminsky.
“A main part of that effect—we estimate about two-thirds—is going to be determined not by the fact that you got through to them the information you were trying to convey about calories, but . . . by reminding them, ‘Hey, when you make your decision, please think about calories.’”
That goes beyond the cornerstone of “trans-parency” thinking—that if you give consumers the right information, they’ll make decisions that will benefit their health and welfare. Study subjects were influenced less by the specific content of the information than by being made conscious of calories and their consequences. In fact, in some cases, when consumers’ beliefs about nutrition differed from actual calorie content, they tended to follow their beliefs and ignore the facts.
Urminsky suggests that making calorie labels more prominent and readable will go a long way to addressing some of their shortcomings. But he thinks researchers and policy makers need to better understand how labeling actually affects consumers.
“I think it’s worth having a conversation that asks, ‘If we’re ramping up the font size of the calorie information, what is that doing?’” he says. “Is it just making us more effective at conveying information, or is it also going beyond purely conveying information to actually have a reminder or implied prescriptive component as well?”
“The way in which you give people information could convey a recommendation,” he says, “but even if it doesn’t convey a recommendation, it affects how we think.”
Roadside signs are another form of labeling. They can prompt motorists to fasten their seat belts, pay attention to roadwork ahead, or patronize nearby merchants or shopping centers.
In 2007, the Italian parliament began requiring gasoline retailers located near Italy’s Autostrade, the highway system that traverses the country, to post their prices on electronic signs along the motorway and update them as they change. Each sign shows the price of gasoline charged by several nearby service stations, allowing drivers to comparison shop for gas.
The goal: increase price transparency for the benefit of drivers, and also promote competition.
Chicago Booth’s Pradeep K. Chintagunta and Federico Rossi of Bocconi University in Milan studied what happened to gas prices between October 2008 and May 2009. Gasoline is a commodity, and Chintagunta explains that “in circumstances where the products are, in fact, identical, then it makes sense to say the more information the consumer has, the better off the consumer will be.”
Prices charged by gas stations near the Autostrade did indeed decrease—by 1 euro cent per liter, equivalent to 20 percent of the stations’ margins. However, the policy was most effective for service stations only a short distance from the signs.
Furthermore, only a small group of frequent shoppers—fewer than 10 percent of all the consumers, according to the researchers’ estimates—seemed to use the price information available to choose the stations with the lowest prices.
Some logistical complications may be to blame. “Although you’re providing these signs, it’s not clear you’re getting the full benefit for a couple of reasons,” Chintagunta explains. “One is people are driving too fast and can’t read the prices, and a second is, keep in mind, people are entering and exiting the highway in between the signs and so are missing these signs. For these people, you are not going to see much of an effect, because they are not exposed to these signs at all.”
The research suggests that to give the public the maximum benefit of greater transparency, policy makers have to consider not only what information consumers receive but how—and if—they’ll be able to put it to use.
Shopping for surgeries
Health care is a highly complex industry, making up about 18 percent of US GDP. It encompasses hospital emergency rooms, nursing homes, highly trained specialists, and elective procedures such as cosmetic surgery.
But despite—or perhaps because of—its complexity, it too has become a market where regulators have pushed for greater price transparency, and where researchers are examining how disclosure can affect consumer behavior.
Hans B. Christensen and Mark G. Maffett of Chicago Booth and Eric Floyd of Rice University focused on regulations adopted by 27 US states that require hospitals to disclose pricing on publicly visible state websites, allowing patients to compare the average charges for common procedures across hospitals within the state.
They studied five procedures, some elective and some urgent: cesarean sections, knee replacements, hip replacements, appendectomies, and uterine procedures. Using data from MarketScan and the Nationwide Inpatient Sample, they examined both hospital charges (the prices hospitals initially bill) and actual payments (the price patients ultimately pay) for these procedures made by privately insured and self-paying patients.
Several features of the health-care market made it distinct from, say, gasoline stations on the Autostrade, which sell a commodity at nearly identical prices.
First, there was wide price dispersion for identical procedures. In the sample the researchers studied, the cost of appendectomies ranged from $6,652 to $68,509.
Second, only 12 percent of US health-care payments in 2013 were made by consumers; the government and private insurers paid more than 80 percent. Except for elective procedures, consumers’ expenditures typically comprise co-payments and deductibles rather than full out-of-pocket payment to health-care providers. Since consumers generally don’t pay directly, they have less incentive to shop for the lowest price, Christensen says.
Third, patients often choose hospitals based on where their physicians have admitting privileges, so to some degree, physicians become the gatekeepers
Finally, during medical emergencies, patients have little time or incentive to shop around for the most economical hospital or provider.
After controlling for some of the US health-care market’s quirks, Christensen, Maffett, and Floyd still are able to document a 6.4 percent decrease in charges for disclosed procedures in those states that implemented transparency regulation. But these charge reductions did not lead to declines in actual prices. In fact, the drop in charges wasn’t due to patients’ comparison shopping. “The bulk of the observed reduction in charges is attributable to hospitals reducing their prices rather than patients switching to cheaper hospitals,” they write.