Disclosure to a Credulous Audience: The Role of Limited Attention

45 Pages Posted: 4 Feb 2005

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 22, 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. These observers may choose ex ante how to allocate their limited attention. 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.

JEL Classification: M41, D82, G14, G18

Suggested Citation

Hirshleifer, David A. and Lim, Sonya S. and Teoh, Siew Hong, Disclosure to a Credulous Audience: The Role of Limited Attention (October 22, 2002). 14th Annual Conference on Financial Economics and Accounting (FEA); Dice Center Working Paper No. 2002-3. Available at SSRN: https://ssrn.com/abstract=604143 or http://dx.doi.org/10.2139/ssrn.604143

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
293
Abstract Views
2,632
rank
19,699
PlumX Metrics