Comparative Statics of Disclosure Statements

Abstract

Financial companies often use disclosure statements (DSs) to categorize uncertain contingencies into different sections (e.g., a health insurance plan includes sections such as “hospital coverage” and “dental coverage”). We model DSs as information partitions of the state space, which influence how a consumer perceives her choice problem and how she makes her demand decisions. We study a consumer with weakly separable preferences, which allows us to define event-risk attitude to the DS’s categories. Our main results show that aggregating the more expensive events into a coarser DS decreases a firm’s profit if and only if the consumer is event-risk averse. The opposite result holds for event-risk loving. Our findings can be extended to a more general class of consumer preferences and provide insights into the optimal design of DSs. This paper was accepted by Ilia Tsetlin, behavioral economics and decision analysis. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2023.4742 .