Disclosure: Psychology Changes Everything

Abstract

Abstract:We review literature examining the effects of laws and regulations that require public disclosure of information. These requirements are most sensibly imposed in situations characterized by misaligned incentives and asymmetric information between, for example, a buyer and seller or an advisor and advisee. We review the economic literature relevant to such disclosure, and then discuss how different psychological factors complicate, and in some cases radically change, the economic predictions. For example, limited attention, motivated attention, and biased assessments of probability on the part of information recipients can significantly diminish, or even reverse, the intended effects of disclosure requirements. In many cases disclosure does not much affect the recipients of the information, but does significantly affect the behavior of the providers, sometimes for the better and sometimes for the worse. We review research suggesting that simplified disclosure, standardized disclosure, vivid disclosure, and social comparison information can all be used to enhance the effectiveness of disclosure policies. Acknowledgments:We thank Saurabh Barghava, Cynthia Estlund and Daniel Schwartz for helpful comments, and Jacob Reisberg and Spencer Baugh for superb research assistance.

Energy Contents of Frequently Ordered Restaurant Meals and Comparison with Human Energy Requirements and US Department of Agriculture Database Information: A Multisite Randomized Study

“…It is anticipated that this measure will be insufficient as a sole strategy to reduce obesity because, to date, the measured effects of calorie labeling on food choice and consumption have been nonexistent or small, 35–38 which may be due to consumers’ limited ability to predict their own needs. 39 This is not surprising when viewed from the biological perspective that exposure to large portions causes greater activation of the neurologic reward system and the autonomic nervous system than small portions (because the food exposure period is extended), which in turn results in persistent desire for food while food exposure exists and increased desire to eat. 40,41 These biological mechanisms explain why large portions are consumed in amounts proportional to portion size.…”

Consumer and Strategic Firm Response to Nutrition Shelf Labels

“…In the second store we also disclosed that the LF claim followed FDA guidelines to allow consumers to distinguish this shelf label from potentially spurious advertising claims. This treatment incorporates previous findings of consumer inattention to missing information and possible conflicts of interests when firms voluntarily disclose product attribute information (Loewenstein, Sunstein, and Golman ). In the third store we displayed LC shelf labels instead.…”

Real effects of reporting key audit matters on auditors' judgment and choice of action

“…For other forms of additional disclosure, however, unintended negative effects on the JDM have also been reported (Jamal, 2012;Loewenstein, Sunstein, & Golmann, 2014), especially for the disclosure of conflicts of interests (Cain, Loewenstein, & Moore, 2005;Cain, Loewenstein, & Moore, 2011;Jamal, Marshall, & Tan, 2016;Koch & Schmidt, 2010). Notably, one experimental study by Griffin (2014) showed that supplemental disclosure in the notes concerning the uncertainty of accounting estimates can provide auditors with a moral license to accept material misstatements by the client.…”