The nutrition label illusion

In its effort to improve the nutrition label, the Food and Drug Administration (FDA) recently updated the proposed label design. The agency added the new requirement for the Daily Value declaration and new footnote text. Despite the FDA's efforts, the proposed label still falls woefully short of its goal to improve the American diet. That's because the label still focuses on the amount of information it conveys rather than the information's usefulness, salience or ease of use.

The FDA's decision to mandate added sugar declaration is emblematic of the label's problems. The FDA proposed to require added sugar declaration in addition to the total sugar already disclosed on the label. When the agency tested the impact of the new requirement, it found that the proposed label confused consumers trying to identify a more nutritious product. Thus, when the more nutritious product had less added sugar, consumers were just as likely to identify the more nutritious product correctly with either the proposed or current label. Yet, when the more nutritious product had higher added sugar content, consumers were less likely to identify the more nutritious product using the proposed label. It is likely that some consumers used a mental shortcut and assumed that less added sugar signified a healthier product. Consequently, they were misled by the proposed label.

Yet, the experience of other agencies shows that labels can be used to effectively communicate information to consumers. Consider, for example, the new fuel economy label. Similar to the FDA, the Environmental Protection Agency (EPA) and Department of Transportation (DOT) sought to update the fuel economy label in order to make it more accurate and more useful to consumers. So in 2011, the agencies completely redesigned the label, which now provides more information than the original miles per gallon (MPG) disclosure. What makes the fuel economy label different is the fact that the label explicitly focused on consumers' needs by making fuel efficiency information both salient and usable.

For example, studies found that consumers usually misinterpret MPG ratings. They assume that a vehicle's fuel efficiency increases in proportion to its MPG rating. Thus, consumers assume that upgrading a vehicle from 10 MPG to 15 MPG will yield about as much fuel savings as upgrading from 20 MPG to 25 MPG. In reality, fuel efficiency improvements are higher at lower MPG levels. This is what is known as the "MPG illusion." To counter this confusion, the new label shows fuel efficiency in the number of gallons per 100 miles — a much more intuitive metric of fuel efficiency.

Another problem that consumers face is that they often focus too much on the upfront vehicle price but fail to consider future fuel costs. To counter consumer myopia, the label displays the estimated annual fuel cost. In addition, it shows how much money a consumer would save over five years with the current vehicle compared to an average vehicle in its class. The label makes it easier for consumers to make the tradeoffs between the higher price and the lower fuel costs of more efficient vehicles.

Finally, the fuel economy label makes it easy for consumer to compare vehicles by providing a fuel efficiency and greenhouse gas rating on a sliding scale. The scale ranges from the worst to best vehicles in the same class and gives consumers a frame of reference to evaluate the vehicle.

Both the nutrition and fuel economy labels face a similar problem: They try to help consumers make better choices by giving them more information. Yet, whereas the nutrition label throws confusing jargon and meaningless numbers at consumers, the fuel economy label places information in the context that is meaningful and easily understandable for most consumers. The fuel economy label's success is not an accident; it stems from agencies' explicit effort to be purposeful in their disclosures and mindful of consumers' needs. The FDA would do well to learn from the EPA and DOT's experience.

Abdukadirov is a research fellow in the Regulatory Studies Program at the Mercatus Center at George Mason University.