Is No News (Perceived as) Bad News? An Experimental Investigation of Information Disclosure

Abstract

A central prediction of information economics is that market forces can lead businesses to voluntarily provide information about the quality of their products, yet little voluntary disclosure is observed in the field. In this paper, we demonstrate that the inconsistency between theory and reality is driven by a fundamental failure in consumer inferences when sellers withhold information. Using a series of laboratory experiments, we implement a simple disclosure game in which senders can verifiably report quality to receivers. We find that senders disclose less often than equilibrium would predict. Receivers are not sufficiently skeptical about undisclosed information -they underestimate the extent to which no news is bad news. Senders generally take advantage of receiver mistakes. We find that providing disclosure rates by quality score helps to improve receiver inferences.

Shrouding Add‐On Information: An Experimental Study*

“…Indeed, Jin et al . () find evidence that receivers are often naïve about non‐disclosed information while reacting nearly optimally when information is disclosed, which can be viewed as support for our assumptions on computerized buyer behavior.…”

Incomplete Disclosure: Evidence of Signaling and Countersignaling

“…On the one hand, experimental evidence presented in FHT (2002) suggests that senders (firms) are able to implement a countersignaling equilibrium in the lab. On the other hand, Jin, Luca, and Martin (2015) show that, in a simple disclosure game (without countersignaling), senders are typically more sophisticated than receivers and receivers are not paying too much attention to what it means by nondisclosure. Consumer perception of nondisclosure warrants further study.…”

Communication With Partially Verifiable Information: An Experiment

“…A substantial experimental literature has examined cheap talk games based on the model of Crawford and Sobel (1982) (see Blume et al, 2017 for a review), and similarly, previous experiments have studied verifiable message (disclosure) games based on the models of Milgrom (1981) and Grossman (1981) Forsythe et al, 1989Forsythe et al, , 1999Hagenbach and Perez-Richet, 2018;Jin et al, 2018;King and Wallin, 1991;Li and Schipper, 2018;Penczynski and Zhang, 2017). The game we use differs from a cheap talk game in that messages can be (partially) backed by evidence, and differs from a verifiable message game in that we force partial disclosure (whereas in verifiable message games senders may remain silent or fully reveal their type).…”