Disclosure to a Credulous Audience: The Role of Limited Attention

Abstract:     
We model limited attention as incomplete usage of publicly available information. Informed players decide whether or not to disclose to observers who sometimes neglect either disclosed signals or the implications of non-disclosure. In equilibrium observers are unrealistically optimistic, disclosure is incomplete, neglect of disclosed signals increases disclosure, and neglect of a failure to disclose reduces disclosure. Regulation requiring greater disclosure can reduce observers' belief accuracies and welfare. Disclosure in one arena affects perceptions in fundamentally unrelated arenas, owing to cue competition, salience, and analytical interference. Disclosure in one arena can crowd out disclosure in another. A player may disclose in one arena to distract from bad news in the other (a "wag the dog" effect).

Number of Pages in PDF File: 42

JEL Classification: D82, G14, G18, M41, M45

working papers series