Disclosure to an Audience with Limited Attention

49 Pages Posted: 15 Oct 2004

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: October 11, 2004

Abstract

In our model, informed players decide whether or not to disclose, and observers allocate attention among disclosed signals, and toward reasoning through the implications of a failure to disclose. In equilibrium disclosure is incomplete, and observers are unrealistically optimistic. Nevertheless, regulation requiring greater disclosure can reduce observers' belief accuracies and welfare. A stronger tendency to neglect disclosed signals increases disclosure, whereas a stronger tendency to neglect failures to disclose reduces disclosure. Observer beliefs are influenced by the salience of disclosed signals, and disclosure in one arena can crowd out disclosure in other fundamentally unrelated arenas.

Keywords: Disclosure policy, disclosure regulation, limited attention, behavioral economics, behavioral accounting, behavioral finance, market efficiency, psychology and economics

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

Suggested Citation

Hirshleifer, David A. and Lim, Sonya S. and Teoh, Siew Hong, Disclosure to an Audience with Limited Attention (October 11, 2004). Available at SSRN: https://ssrn.com/abstract=604142 or http://dx.doi.org/10.2139/ssrn.604142

David A. Hirshleifer

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 (Contact Author)

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

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