Guest Post: Furth-Matzkin, Feldman, & Becher, Uprooting Seductive Oral Deals
Uprooting Seductive Oral Deals
* By Meirav Furth-Matzkin, Yuval Feldman & Samuel Becher
The law generally assumes that contracting parties assent to a contract’s terms after reading and understanding them. However, the proliferation of standard form contracts in transactions between consumers and businesses has challenged this assumption.
Navigating their lives in an increasingly complex world, consumers must often resort to the oral representations of salespeople to gain a basic understanding of the transactions they contemplate. While these oral representations may be persuasive, they are regularly disclaimed or qualified in the fine print of standard form contracts that most consumers sign without reading.
There are legitimate reasons for enforcing the written terms of contracts, even when they contradict previous oral representations. However, unique behavioral forces and contracting realities render consumers particularly vulnerable to misleading oral statements made by salespeople and challenge the rationale behind enforcing the written terms.
Various social and psychological forces lead consumers to trust salespeople. Consumers expect salespeople to have a good familiarity with the product or service at stake and the company’s attendant policies. Consumers also tend to believe that legal liability provides a strong deterrent against misrepresenting the terms of the transaction. Furthermore, a host of cognitive biases–such as optimism, motivated reasoning, and confirmation bias–may prompt consumers to interpret pre-contractual oral exchanges in ways that reinforce their decision to enter the transaction. In the process, consumers are likely to ignore useful information that would complicate this decision, a phenomenon that is also known as the “ostrich effect.”
In addition, behavioral ethics provides insight into why salespeople might be prone to misrepresent a deal to consumers. Indeed, recent studies demonstrate that “ordinary unethicality”–behaviors such as stealing office supplies from work, misreporting tax benefits, or double parking–is far more pervasive than previously assumed. Such misconduct occurs regularly, yet has received scant attention.
In the context of seductive oral deals, salespeople may convince themselves that oral misrepresentations constitute a legitimate marketing technique. They may also believe that aggressive marketing is prevalent and acceptable in consumer markets. In addition, there is evidence that people are more likely to lie when communicating orally. Salespeople may convince themselves that “everyone does it,” and that “this is the only way to survive in this business.”
Moreover, salespeople may redirect the blame of making such statements onto consumers, finding them “guilty” of misinterpreting ambiguous statements. In a similar vein, salespeople may scold consumers for relying on oral statements that contradict the terms of the written contract. After all, salespeople may believe that consumers should read the contract before accepting it.
Even more disturbingly, salespeople are more likely to justify unethical behavior when interacting with consumers with dissimilar demographic characteristics due to an “in-group” (or “homophily”) bias. For example, a white middle-class male seller may be more likely to mislead a poor African-American female customer.
Misleading oral deals generate considerable social costs. Consumers are harmed when they enter into transactions based on inaccurate information. Worryingly, they are often also deterred from asserting their rights after realizing they were misled. This is because consumers typically feel legally and morally bound by the written contract, even if it contains terms that are void, unconscionable, or otherwise unfair.
Thus, a form contract that negates an oral statement is likely to have a substantial impact on consumers’ legal perceptions. Furthermore, many consumers will forgo any legal action since they cannot afford the potentially high costs associated with litigation. Alas, these harmful effects fall disproportionately on the least assertive and most vulnerable consumers, who tend to lack the resources or confidence in the legal system to vindicate their rights.
Furthermore, society as a whole is harmed when firms engage in dishonest behavior. First, when dishonesty prevails, it is more difficult for honest firms to compete in consumer markets. Scrupulous firms may be driven out of the market or pressed to engage in unethical behavior to survive competition. Second, when dishonesty is legitimized and trivialized, consumer trust—a key virtue in thriving economies and flourishing societies—is gradually eroded.
The protections that the law currently provides against misleading oral deals do not adequately safeguard consumers because they are based on three false assumptions.
First, the law assumes that misleading oral interactions are the rare exception, not the norm. This, we argue, is not the case: empirical evidence and insights from behavioral ethics suggest that misleading oral deals are considerably more common than has been previously assumed.
Second, the law unrealistically expects consumers to read and understand contracts, and to refrain from relying on misleading information and inaccurate promises made by sellers and their agents. However, consumers cannot be expected to read form contracts because they are often too difficult to read and understand. Besides, people are trusting creatures, and consumers cannot realistically be expected to ignore or discount salespeople’s oral assertions.
Third, the law overestimates the degree to which consumers will effectively challenge misleading statements. In practice, many consumers are unaware of their rights, unable to assert them, or dissuaded by the fine print.
Preventive measures should primarily focus on businesses, as they are the least-cost avoiders. Firms could be encouraged (or required) to provide strict, detailed guidance on appropriate sales tactics and to prohibit any oral misrepresentations (perhaps even puffery). Businesses should then monitor agents’ statements and penalize those who transgress. Another path to consider is imposing liability on marketing executives who fail to ensure that their personnel does not engage in fraudulent representations.
To supplement these preventive measures, policymakers and consumer organizations could embark on informational campaigns. These campaigns could educate consumers about the prevalence of misleading oral interactions and the risk of trust exploitation. Using a variety of smart tools, educational campaigns may endeavor to make related complaints and legal cases more salient to consumers.
With the understanding that consumers are unlikely to take legal action against deceptive sellers, regulators should facilitate consumer litigation efforts. One recommendation is to allow public agencies and consumer organizations to litigate on behalf of defrauded consumers. These entities could use recordings and mystery shopping to overcome the evidentiary hurdles that misleading oral deals inevitably impose. Additionally, the use of merger, integration, and no-reliance clauses could be limited, and the parol evidence rule could be restricted or eliminated in this context.
Finally, we recommend adjusting corporate social responsibility standards to include a commitment to uproot misleading oral deals. Combined, such measures could assist in combating fraud in the marketplace.
This blogpost is based on our recent article, Seductive Oral Deals.