Information and Decisionmaking at the Federal Trade Commission

Ad interpretation is a central issue in nearly every false advertising case before both the Federal Trade Commission and the federal courts (under the Lanham Trade-Mark Act). Part of ad interpretation is the ancillary issue of whether to require extrinsic evidence supporting a disputed interpretation, particularly where the false claim alleged to be made is implicitly rather than explicitly stated. The authors first discuss the legal standard concerning when extrinsic evidence is required. Though the FTC and most federal courts apply different standards in requiring extrinsic proof of an ad's meaning, some federal courts appear to be moving toward the FTC's standard—namely, that extrinsic proof is required only for those implied claims that the decision maker cannot himself interpret with confidence from the face of the ad itself. The authors then use a Bayesian decisionmaking perspective to examine the implementation of the FTC's legal standard. This perspective leads to the conclusion that measures of variability will often be as important to decisionmaking as the mean estimate provided in statistical evidence.