Disclosure and choice
Files
Accepted manuscript
Date
2018-07
DOI
Authors
Ben-Porath, Elchanan
Dekel, Eddie
Lipman, Barton L.
Version
OA Version
Citation
Elchanan Ben-Porath, Eddie Dekel, Barton L. Lipman. 2018. "Disclosure and Choice." The Review of Economic Studies, Volume 85, Issue 3, 1 July 2018, Pages 1471–1501. https://doi.org/10.1093/restud/rdx064
Abstract
An agent chooses among projects with random outcomes. His payoff is increasing in the outcome and in an observer's expectation of the outcome. With some probability, the agent can disclose the true outcome to the observer. We show that choice is inefficient: the agent favors riskier projects even with lower expected returns. If information can be disclosed by a challenger who prefers lower beliefs of the observer, the chosen project is excessively risky when the agent has better access to information, excessively risk{averse when the challenger has better access, and efficient otherwise. We also characterize the agent's worst-case equilibrium payoff.