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    Complex Disclosure
    06 Jun 2018Working Paper Summaries

    Complex Disclosure

    by Ginger Zhe Jin, Michael Luca, and Daniel Martin
    This study shows that companies looking to hide unfavorable information might strategically be making contract terms unnecessarily complex, harming consumers and undermining the effectiveness of disclosure. These results highlight a role for regulation that would encourage simpler forms of disclosure.
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    Author Abstract

    Disclosure policies have the potential to help consumers and make markets more efficient. Yet, the effectiveness of disclosure policies can be undermined if firms strategically make unfavorable information unnecessarily complicated to understand. To explore the incentives for using complexity in disclosure, we implement a game of mandatory disclosure where senders are required to report their private information truthfully but can choose how complex to make their reports. We find that senders use complex disclosure over half the time, and most of this obfuscation is profitable because receivers make systematic mistakes in assessing complex reports. Stated beliefs suggest that receivers correctly infer the strategic implications of complexity but are overconfident about their ability to assess complex reports.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: May 2018
    • HBS Working Paper Number: HBS Working Paper #18-105
    • Faculty Unit(s): Negotiation, Organizations & Markets
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    Michael Luca
    Michael Luca
    Lee J. Styslinger III Associate Professor of Business Administration
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