Silence is Safest: Non-Disclosure When the Audience's Preferences are Uncertain

33 Pages Posted: 26 Feb 2018  

Philip Bond

University of Washington - Michael G. Foster School of Business

Yao Zeng

University of Washington - Michael G. Foster School of Business

Date Written: February 14, 2018

Abstract

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

Bond, Philip and Zeng, Yao, Silence is Safest: Non-Disclosure When the Audience's Preferences are Uncertain (February 14, 2018). Available at SSRN: https://ssrn.com/abstract=3124106 or http://dx.doi.org/10.2139/ssrn.3124106

Philip Bond

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

Yao Zeng (Contact Author)

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

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

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