Silence is Safest: Non-Disclosure When the Audience's Preferences are Uncertain
33 Pages Posted: 26 Feb 2018
Date Written: February 14, 2018
We examine voluntary disclosure in a setting where the would-be discloser (“sender”) is risk-averse and faces uncertainty about the audience’s (“receiver’s”) preference ordering over different sender-types. We show that some senders abstain from disclosing in equilibrium, in contrast to classic “unravelling” results. In such equilibria, senders with extreme types do not disclose, while senders with intermediate types disclose. Non-disclosure reduces the sensitivity of a sender’s payoff to the receiver’s preference ordering, which is attractive to risk-averse senders. Increased sender risk-aversion reduces equilibrium disclosure by sender-types who bear a higher risk under disclosure than non-disclosure. In contrast, non-disclosure exposes receivers to risk by reducing their ability to differentiate between sender types, and consequently, increased receiver risk-aversion increases equilibrium disclosure. The model accommodates many applications in finance and economics.
Keywords: information disclosure, risk aversion, uncertainty, preferences
JEL Classification: D81, D82, D83, G14
Suggested Citation: Suggested Citation