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Disclosure and Choice

Author

Listed:
  • Elchanan Ben-Porath
  • Eddie Dekel
  • Barton L. Lipman

Abstract

An agent chooses among projects with random outcomes. His payoff is increasing in the outcome and in an observer's expectation of the outcome. With some probability, the agent can disclose the true outcome to the observer. We show that choice is inefficient: the agent favors riskier projects even with lower expected returns. If information can 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 payoff.

Suggested Citation

  • Elchanan Ben-Porath & Eddie Dekel & Barton L. Lipman, 2016. "Disclosure and Choice," Discussion Paper Series dp694, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
    • Handle: RePEc:huj:dispap:dp694
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    References listed on IDEAS

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    Cited by:

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    2. Miura, Shintaro, 2019. "Manipulated news model: Electoral competition and mass media," Games and Economic Behavior, Elsevier, vol. 113(C), pages 306-338.
    3. Mark Whitmeyer & Kun Zhang, 2022. "Costly Evidence and Discretionary Disclosure," Papers 2208.04922, arXiv.org.
    4. S Nageeb Ali & Greg Lewis & Shoshana Vasserman, 2023. "Voluntary Disclosure and Personalized Pricing," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(2), pages 538-571.
    5. Chen, Wanyi, 2021. "Dynamic survival bias in optimal stopping problems," Journal of Economic Theory, Elsevier, vol. 196(C).
    6. Thomas, Caroline, 2019. "Experimentation with reputation concerns – Dynamic signalling with changing types," Journal of Economic Theory, Elsevier, vol. 179(C), pages 366-415.
    7. Au, Pak Hung & Chen, Bin R., 2019. "Objective and subjective indicators in long-term contracting," Journal of Economic Behavior & Organization, Elsevier, vol. 166(C), pages 309-331.
    8. Lichtig, Avi & Weksler, Ran, 2023. "Information transmission in voluntary disclosure games," Journal of Economic Theory, Elsevier, vol. 210(C).
    9. Bertomeu, Jeremy & Marinovic, Iván & Terry, Stephen J. & Varas, Felipe, 2022. "The dynamics of concealment," Journal of Financial Economics, Elsevier, vol. 143(1), pages 227-246.
    10. Chen, Zhongfei & Xie, Guanxia, 2022. "ESG disclosure and financial performance: Moderating role of ESG investors," International Review of Financial Analysis, Elsevier, vol. 83(C).

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    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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