“Complex Disclosure,” Daniel Martin, Northwestern University

BEHAVIORAL SCIENCES WORKSHOP

This is join work with Ginger Zhe Jin (Maryland) and Michael Luca (Harvard Business School). We present evidence that complex disclosure can result from the strategic incentives to shroud information. We implement an experiment 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. Most of this obfuscation is profitable because receivers make systematic mistakes in assessing complex reports. Receivers understand that senders are using complexity to hide bad news. However, strategic complexity is still effective, which can be attributed to receivers being overconfident in their ability to process complex information.

Daniel Martin is an Associate Professor (untenured) in the Managerial Economics and Decision Sciences (MEDS) department of the Kellogg School of Management. He is a behavioral and experimental economist who studies the processing and disclosure of information. For example, he investigates why firms do not voluntarily and clearly disclose information about product quality and why consumers do not pay full attention to information about prices or product quality. His research has appeared in the top journals of the American Economic Association, Royal Economic Society, and Harvard Kennedy School. Before receiving a PhD in Economics from New York University, he was the co-founder of a small business, which is now one of the leading providers of IT services to small and medium-sized businesses in the Carolinas.

The Behavioral Sciences Workshop is cosponsored by the Center for the Study of American Politics (CSAP) and the School of Management’s International Center for Finance and Whitebox Advisors fund. Lunch will be served.