Disclosing information to a loss-averse audience
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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.
KeywordsLoss aversion Reference dependence Information disclosure
I thank an anonymous referee for helpful suggestions and all remaining errors are mine.
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