Disclosure to a Credulous Audience: The Role of Limited Attention

Dice Center Working Paper No. 2002-3

42 Pages Posted: 13 Feb 2002

See all articles by David A. Hirshleifer

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business; NBER

Sonya S. Lim

DePaul University - Department of Finance

Siew Hong Teoh

University of California, Irvine - Accounting Area

Date Written: February 4, 2002

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).

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

Suggested Citation

Hirshleifer, David A. and Lim, Sonya S. and Teoh, Siew Hong, Disclosure to a Credulous Audience: The Role of Limited Attention (February 4, 2002). Dice Center Working Paper No. 2002-3. Available at SSRN: https://ssrn.com/abstract=300544 or http://dx.doi.org/10.2139/ssrn.300544

David A. Hirshleifer (Contact Author)

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA California 92697-3125
United States

HOME PAGE: http://sites.uci.edu/dhirshle/

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Sonya S. Lim

DePaul University - Department of Finance ( email )

1 East Jackson Blvd.
Chicago, IL 60604-2287
United States

HOME PAGE: http://sites.google.com/site/sonyalim/

Siew Hong Teoh

University of California, Irvine - Accounting Area ( email )

Irvine, CA 92697-3125
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
378
Abstract Views
3,210
rank
19,523
PlumX Metrics