Disclosure to an Audience with Limited Attention
David Hirshleifer, Sonya S. Lim, and Siew Hong Teoh
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.