Complex Disclosure

We implement experimentally a simple game of mandatory disclosure in which senders are required to disclose their private information truthfully, but can choose how complex to make their reports. If senders choose complex reports, receivers must exert costly cognitive effort to correctly determine the sender’s private information. We find that senders use complex disclosure when their private information would lead receivers to act against their interests. This obfuscation is sustained by two types of mistakes that receivers make when they face complexity. First, receivers who make quick decisions act in accordance with their prior beliefs, but these priors are often incorrect, which reflects incorrect beliefs about sender strategies. Second, receivers who make considered decisions do not act in accordance with their prior beliefs. Instead they appear to ignore their prior beliefs entirely, consistent with base rate neglect. 1 The views expressed are those of the authors and do not necessarily represent those of the U.S. Federal Trade Commission or any individual Commissioner.