Benign vs. Self-Serving Information Reduction: Do Individuals Understand the Difference?

Abstract

To ease consumer choice, regulators often require producers to make standardized and comparable disclosures over key product attributes. At the same time, product advertising may emphasize similar comparisons, albeit over strategically chosen attributes. We show that individuals may conflate these two cases; largely failing to understand that self-serving disclosures are uninformative, they are consequently exploited by producers. The fallacy is not due to consumer naivete regarding producer behavior; rather, subjects incorrectly adjust prior beliefs in response to strategically disclosed information. Thus, for the boundedly rational to benefit from reduced information loads, limited disclosures must be independent of other parties' motives.