Comparative Statics of Disclosure Statements

Anastasia Burkovskaya () and Jian Li ()
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Anastasia Burkovskaya: School of Economics, University of Sydney, Sydney, New South Wales 2006, Australia
Jian Li: Department of Economics, Iowa State University, Ames, Iowa 50011

Management Science, 2024, vol. 70, issue 3, 1410-1427

Abstract: Financial companies often use disclosure statements (DSs) to categorize uncertain contingencies into different sections (e.g., a health insurance plan includes sections such as “hospital coverage” and “dental coverage”). We model DSs as information partitions of the state space, which influence how a consumer perceives her choice problem and how she makes her demand decisions. We study a consumer with weakly separable preferences, which allows us to define event-risk attitude to the DS’s categories. Our main results show that aggregating the more expensive events into a coarser DS decreases a firm’s profit if and only if the consumer is event-risk averse. The opposite result holds for event-risk loving. Our findings can be extended to a more general class of consumer preferences and provide insights into the optimal design of DSs.

Keywords: framing effect; narrow bracketing; weakly separable preferences; insurance demand; information design (search for similar items in EconPapers)
Date: 2024
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