Strategic Disclosure of Risky Prospects: A Laboratory Experiment

Abstract

Evidence from an interactive experiment indicates that the tendency of users to anchor on one-sided disclosures of risk (i.e., disclosing upside potential or downside risk, but not both) is robust to whether disclosures are determined randomly or chosen strategically by opportunistic agents with known preferences for higher valuations. This study therefore addresses qualifications in prior research about the generalizability of cognitive disclosure phenomena to a strategic disclosure environment. One implication supported by the data is that if cognitive biases such as the anchoring effect for one-sided risk disclosures are robust to a strategic environment, strategic agents can capitalize on these biases, extending the menu of strategic opportunities beyond those typically considered in economic models of disclosure.

Keywords: risk, strategic disclosure, anchoring

JEL Classification: M41, M45, C91