Working Paper: NBER ID: w23823
Authors: Petra Persson
Abstract: Limits on consumer attention give firms incentives to manipulate prospective buyers’ allocation of attention. This paper models such attention manipulation and shows that it limits the ability of disclosure regulation to improve consumer welfare. Competitive information supply, from firms competing for attention, can reduce consumers’ knowledge by causing information overload. A single firm subjected to a disclosure mandate may deliberately induce such information overload to obfuscate financially relevant information, or engage in product complexification to bound consumers’ financial literacy. Thus, disclosure rules that would improve welfare for agents without attention limitations can prove ineffective for consumers with limited attention. Obfuscation suggests a role for rules that mandate not only the content but also the format of disclosure; however, even rules that mandate “easy-to-understand” formats can be ineffective against complexification, which may call for regulation of product design.
Keywords: Consumer Attention; Disclosure Regulation; Information Overload; Consumer Welfare
JEL Codes: D11; D14; D18; D83
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| limited consumer attention (D19) | firms' manipulation of information disclosure (G38) |
| firms' manipulation of information disclosure (G38) | information overload (D80) |
| limited consumer attention (D19) | information overload (D80) |
| disclosure regulations (G18) | unintended consequences (D62) |