Disclosure: Psychology Changes Everything

Posted: 8 Aug 2014

See all articles by George Loewenstein

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

Multiple version iconThere are 2 versions of this paper

Date Written: August 2014

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.

Suggested Citation

Loewenstein, George F. and Sunstein, Cass R. and Golman, Russell, Disclosure: Psychology Changes Everything (August 2014). Annual Review of Economics, Vol. 6, pp. 391-419, 2014, Available at SSRN: https://ssrn.com/abstract=2477776 or http://dx.doi.org/10.1146/annurev-economics-080213-041341

George F. Loewenstein (Contact Author)

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

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

Cass R. Sunstein

Harvard Law School ( email )

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

79 John F. Kennedy Street
Cambridge, MA 02138
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Russell Golman

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

Pittsburgh, PA 15213-3890
United States

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