Disclosure to a Credulous Audience: The Role of Limited Attention

Hirshleifer, David and Lim, Sonya S. and Teoh, Siew Hong (2004): Disclosure to a Credulous Audience: The Role of Limited Attention.

Abstract

In our model, informed players decide whether or not to disclose, and observers allocate attention among disclosed signals, and toward reasoning through the implications of a failure to disclose. In equilibrium disclosure is incomplete, and observers are unrealistically optimistic. Nevertheless, regulation requiring greater disclosure can reduce observers' belief accuracies and welfare. A stronger tendency to neglect disclosed signals increases disclosure, whereas a stronger tendency to neglect failures to disclose reduces disclosure. Observer beliefs are influenced by the salience of disclosed signals, and disclosure in one arena can crowd out disclosure in other fundamentally unrelated arenas.

• Item Type: MPRA Paper
• Institution: Merage School of Business, University of California, Irvine -
• Language: English
• Keywords: disclosure; disclosure regulation; limited attention; credulity
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search ; Learning ; Information and Knowledge ; Communication ; Belief ; Unawareness; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D84 - Expectations ; Speculations; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing > M49 - Other; G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation

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