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Disclosure and Choice

Author

Listed:
  • Elchanan Ben-Porath

    () (Department of Economics and Center for Rationality, Hebrew University)

  • Eddie Dekel

    () (Economics Department, Northwestern University, and School of Economics, Tel Aviv University)

  • Barton L. Lipman

    () (Department of Economics, Boston University)

Abstract

An agent chooses among projects with random outcomes. His payo is increasing in the outcome and in an observer's expectation of the outcome. With some probability, the agent will be able to disclose some information about the true outcome to the observer. We show that choice is inecient in general. We illustrate this point with a characterization of the ineciencies that result when the agent can perfectly disclose the outcome with some probability and can disclose nothing otherwise as in Dye (1985a). In this case, the agent favors riskier projects even with lower expected returns. On the other hand, if information can also be disclosed by a challenger who prefers lower beliefs of the observer, the chosen project is excessively risky when the agent has better access to information, excessively risk{averse when the challenger has better access, and efficient otherwise. We also characterize the agent's worst{case equilibrium payo . We give examples of alternative disclosure technologies illustrating other forms the inefficiencies can take.

Suggested Citation

  • Elchanan Ben-Porath & Eddie Dekel & Barton L. Lipman, 2014. "Disclosure and Choice," Boston University - Department of Economics - Working Papers Series WP2017-002, Boston University - Department of Economics, revised Jan 2017.
  • Handle: RePEc:bos:wpaper:wp2017-002
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    File URL: http://www.bu.edu/econ/files/2017/04/Lipman-Disclosure-THIS-IS-A-REVISION.pdf
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    References listed on IDEAS

    as
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    1. repec:eee:gamebe:v:113:y:2019:i:c:p:306-338 is not listed on IDEAS
    2. repec:eee:jetheo:v:179:y:2019:i:c:p:366-415 is not listed on IDEAS

    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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