Disclosure and Choice

Elchanan Ben-Porath, Eddie Dekel and Barton Lipman ()

Discussion Paper Series from The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem

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.

Pages: 41 pages
Date: 2016-02
New Economics Papers: this item is included in nep-mic and nep-ppm
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Related works:
Journal Article: Disclosure and Choice (2018)
Working Paper: Disclosure and Choice (2017)
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