Disclosing information to a loss-averse audience

Research output: Contribution to journalArticle

Abstract

We study a firm’s incentive to disclose information sequentially to a consumer with reference-dependent preference which exhibits loss aversion. Sequential disclosure creates an endowment effect, when the consumer expects to buy with earlier information, which can lead to more sales. It also creates a discouragement effect, when the consumer expects not to buy, which can result in less sales. We show that when two pieces of information differ only in their means, it is optimal to disclose sequentially only when the mean difference is large. When information differs only in the accuracy, it is better to disclose first the accurate good information or the inaccurate negative information.
Original languageEnglish
Pages (from-to)63-79
JournalEconomic Theory Bulletin
Volume6
Issue number1
Early online date19 Jul 2017
DOIs
Publication statusPublished - 1 Apr 2018

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