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Disclosing information to a loss-averse audience

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  • Xingyi Liu

    (Universität Würzburg)

Abstract

We study a firm’s incentive to disclose information sequentially to a consumer with reference-dependent preference which exhibits loss aversion. Sequential disclosure creates an endowment effect, when the consumer expects to buy with earlier information, which can lead to more sales. It also creates a discouragement effect, when the consumer expects not to buy, which can result in less sales. We show that when two pieces of information differ only in their means, it is optimal to disclose sequentially only when the mean difference is large. When information differs only in the accuracy, it is better to disclose first the accurate good information or the inaccurate negative information.

Suggested Citation

  • Xingyi Liu, 2018. "Disclosing information to a loss-averse audience," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 6(1), pages 63-79, April.
    • Handle: RePEc:spr:etbull:v:6:y:2018:i:1:d:10.1007_s40505-017-0124-5
    DOI: 10.1007/s40505-017-0124-5
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    References listed on IDEAS

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    Cited by:

    1. Robertson, Matthew J., 2018. "Wrongful Conviction, Persuasion and Loss Aversion," CRETA Online Discussion Paper Series 48, Centre for Research in Economic Theory and its Applications CRETA.

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