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Disclosure to a Credulous Audience: The Role of Limited Attention

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Author Info
Hirshleifer, David
Lim, Sonya S.
Teoh, Siew Hong

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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.

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File URL: http://mpra.ub.uni-muenchen.de/5198/
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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 5198.

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Date of creation: 11 Oct 2004
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Handle: RePEc:pra:mprapa:5198

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Related research
Keywords: disclosure disclosure regulation limited attention credulity

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Find related papers by JEL classification:
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
M49 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Other
G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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    Other versions:
  4. Siew Hong Teoh, 1997. "Information Disclosure and Voluntary Contributions to Public Goods," RAND Journal of Economics, The RAND Corporation, vol. 28(3), pages 385-406, Autumn. [Downloadable!] (restricted)
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    Other versions:
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    Other versions:
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Lin Peng & Wei Xiong, 2005. "Investor Attention: Overconfidence and Category Learning," NBER Working Papers 11400, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Arnoud W.A. Boot & Anjan V. Thakor, 2003. "The Economic Value of Flexibility when there is Disagreement," Tinbergen Institute Discussion Papers 03-002/2, Tinbergen Institute. [Downloadable!]
    Other versions:
  3. Harrison Hong & Walter Torous & Rossen Valkanov, 2002. "Do Industries Lead the Stock Market? Gradual Diffusion of Information and Cross-Asset Return Predictability," University of California at Los Angeles, Anderson Graduate School of Management 1051, Anderson Graduate School of Management, UCLA. [Downloadable!]
  4. David Hirshleifer & KEWEI HOU & Siew Hong Teoh & YINGLEI ZHANG, 2004. "Do Investors Overvalue Firms With Bloated Balance Sheets?," Finance 0412001, EconWPA. [Downloadable!]
    Other versions:
  5. Arnoud W.A. Boot & Anjan V. Thakor, 2003. "Disagreement and Flexibility: A Theory of Optimal Security Issuance and Capital Structure," Tinbergen Institute Discussion Papers 03-001/2, Tinbergen Institute. [Downloadable!]
    Other versions:
  6. Josef Falkinger, 2005. "Limited Attention as the Scarce Resource in an Information-Rich Economy," IZA Discussion Papers 1538, Institute for the Study of Labor (IZA). [Downloadable!]
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