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If you're in the news business, you believe transparency is good. And it is usually a good idea for companies and governments to let the public in on what they're doing. But new social science research suggests that sometimes transparency has unintended consequences. That's what NPR's Shankar Vedantam disclosed to our own David Greene.
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And Shankar brought us some research from the state of Maryland. Shankar, what is this research, and how does it suggest that transparency could be a bad thing?
SHANKAR VEDANTAM, BYLINE: You know, as a card-carrying journalist, I did a double take when I saw this research, David. Michael Collins at the University of Wisconsin recently studied the effect of transparency laws on the recent housing crisis. As lots of homeowners were facing foreclosure in 2008, many states asked the companies that were servicing mortgage loans to report on what they were doing to help homeowners stay in their homes. The state of Maryland told companies, draw up a list of all the homeowners who are in trouble, share the list with us and tell us what you are doing to help these people.
GREENE: And this somehow turned out badly for homeowners?
VEDANTAM: Collins finds this transparency law caused some homeowners to be turned out of their homes. So a policy that was designed to help struggling homeowners ended up hurting some of them.
GREENE: And how did these researchers know that?
VEDANTAM: Here's how Collins found this out. It turns out the state of Maryland has jurisdiction over only some companies that were servicing mortgages in Maryland. So what Collins did is he compared homeowners who were with companies that were subject to these transparency provisions against homeowners who were with companies that were not subject to these transparency provisions.
GREENE: And homeowners with mortgages and these companies that were under this law and being forced to disclose this information, they were the ones who were being kicked out on a larger scale.
VEDANTAM: That's right. So here's what happened. When companies put together the detailed information on homeowners who were in trouble, they worked with some of these homeowners and indeed offered better terms so people could stay in their homes. So that's an example of the policy working exactly as it was designed to work. But in other cases, the very act of systematically documenting which mortgages were in trouble caused the same companies to say, look, we better cut our losses here and institute foreclosure proceedings.
GREENE: Which, Shankar, does not seem to make sense at all. I mean, these companies that already had information on the homeowners, they're just basically being told by the state government that they need to disclose this information. I mean, why would that lead them to then kick people out of their houses?
VEDANTAM: Well, that's a good question, David. Collins argues that it has something to do with a phenomenon known as the status quo bias. And let me just explain what that is. You know, when you and I are stuck in a bad job or a bad relationship, David...
GREENE: Neither of which are the case for the both of us, I'm sure.
VEDANTAM: (Laughter) But we often find it difficult to extricate ourselves from difficult situations. So the status quo might be bad, but people find they can't change the situation. They can't change the status quo. Part of the problem is that we often have so many things going on, we get distracted from attending to the serious problems that we're actually facing. Collins thinks the same thing is happening with the companies. They effectively had all the information that they needed, but they also had their head in the sand about some of the loans that they were servicing. The state requirement that they carefully document which homeowners were in trouble essentially made the problem clear to them. Here's Collins.
MICHAEL COLLINS: What's interesting is that we find that firms do the exact same thing that all of us do, which is we tend to settle for the status quo. However the condition of the world is today, the inertia it takes us to move to a different condition is mightier than it might seem. And so we tend to just do nothing.
VEDANTAM: Here's the bottom line, David. Transparency is actually only a tool. Even as the state of Maryland was using it to try and protect homeowners, companies were using the same information to make financial decisions. They were saying, look, in some of these cases, we should just start foreclosure proceedings. And the people in these homes ended up being hurt by the transparency laws.
GREENE: Imagine it would be hard to tell politicians and people in the government, though, if they see a problem, the best thing is to do just don't talk about it and don't bring it up.
VEDANTAM: So the complicated thing is that sometimes transparency is good, and sometimes it's bad. I think as journalists and as policymakers, we like to imagine that it's always good. And what Collins's research is suggesting is that it's a more nuanced conclusion than we should draw.
GREENE: Shankar, thanks as always.
VEDANTAM: Thank you, David.
GREENE: That's NPR's Shankar Vedantam who regularly comes in to talk about social science research. You can follow him on Twitter @hiddenbrain, and you can find this program on Twitter @MorningEdition. Transcript provided by NPR, Copyright NPR.