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Disclosure: Psychology Changes Everything

42 Pages Posted: 19 Aug 2013 Last revised: 1 Nov 2013

George Loewenstein

Carnegie Mellon University - Department of Social and Decision Sciences

Cass R. Sunstein

Harvard Law School; Harvard University - Harvard Kennedy School (HKS)

Russell Golman

Carnegie Mellon University - Department of Social and Decision Sciences

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Date Written: August 18, 2013

Abstract

We review literature examining the effects of laws and regulations that require public disclosure of information. These requirements are most sensibly imposed in situations characterized by misaligned incentives and asymmetric information between, for example, a buyer and seller or an advisor and advisee. We review the economic literature relevant to such disclosure, and then discuss how different psychological factors complicate, and in some cases radically change, the economic predictions. For example, limited attention, motivated attention, and biased assessments of probability on the part of information recipients can significantly diminish, or even reverse, the intended effects of disclosure requirements. In many cases disclosure does not much affect the recipients of the information, but does significantly affect the behavior of the providers, sometimes for the better and sometimes for the worse. We review research suggesting that simplified disclosure, standardized disclosure, vivid disclosure, and social comparison information can all be used to enhance the effectiveness of disclosure policies.

Keywords: regulation, public disclosure, psychology, economics

JEL Classification: A12

Suggested Citation

Loewenstein, George and Sunstein, Cass R. and Golman, Russell, Disclosure: Psychology Changes Everything (August 18, 2013). Harvard Public Law Working Paper No. 13-30. Available at SSRN: https://ssrn.com/abstract=2312708 or http://dx.doi.org/10.2139/ssrn.2312708

George Loewenstein

Carnegie Mellon University - Department of Social and Decision Sciences ( email )

Pittsburgh, PA 15213-3890
United States
412-268-8787 (Phone)
412-268-6938 (Fax)

Cass Sunstein (Contact Author)

Harvard Law School ( email )

1575 Massachusetts Ave
Areeda Hall 225
Cambridge, MA 02138
United States
617-496-2291 (Phone)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Russell Golman

Carnegie Mellon University - Department of Social and Decision Sciences ( email )

Pittsburgh, PA 15213-3890
United States

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