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Naivety about hidden information: An experimental investigation

Montero, Maria; Sheth, Jesal D.

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Authors

Jesal D. Sheth



Abstract

The unraveling prediction of disclosure theory relies on the idea that strategic forces lead firms (information senders) to voluntarily disclose information about the quality of their products provided the information disclosed is verifiable and the costs of disclosure are negligible. This theoretical prediction requires that consumers (information receivers) hold correct beliefs about non-disclosed information and, in equilibrium, treat all non-disclosed information with extreme skepticism. Previous research finds that receivers are insufficiently skeptical, or in other words are naive, about non-disclosed information, which leads to the failure of unraveling. This paper examines the extent to which naivety responds systematically to features of the decision environment, namely the availability of opportunities to communicate with others (Consultation treatment) and the context of the experimental setting (Context treatment, based on hygiene ratings). We find that complete unraveling fails to occur in all our treatments. Receiver's beliefs and guesses about non-disclosed information are similar across the Consultation and Context treatments relative to the Baseline implying that receivers are naive about non-disclosed information under naturalistic features that exist in field settings. We also find that senders are partly to blame for the lack of unraveling, as intermediate types would gain from disclosing more often given the observed receiver behavior.

Citation

Montero, M., & Sheth, J. D. (2021). Naivety about hidden information: An experimental investigation. Journal of Economic Behavior and Organization, 192, 92-116. https://doi.org/10.1016/j.jebo.2021.09.032

Journal Article Type Article
Acceptance Date Sep 23, 2021
Online Publication Date Oct 26, 2021
Publication Date Dec 1, 2021
Deposit Date Nov 13, 2021
Publicly Available Date Apr 27, 2023
Journal Journal of Economic Behavior and Organization
Print ISSN 0167-2681
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 192
Pages 92-116
DOI https://doi.org/10.1016/j.jebo.2021.09.032
Keywords Consultation, Context, Laboratory Experiment, Verifiable Information Disclosure
Public URL https://nottingham-repository.worktribe.com/output/6614392
Publisher URL https://www.sciencedirect.com/science/article/abs/pii/S0167268121004170?via%3Dihub

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