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Persuasion through Selective Disclosure:
Implications for Marketing, Campaigning, and Privacy Regulation
Florian Ho¤mann, Frankfurt
Roman Inderst, Frankfurt & Imperial College London
Marco Ottaviani, Bocconi
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Motivation
Technological progress in collecting and processing personally identi…able data
–> Firms, political campaigners, etc. (=senders) can better tailor their communication to the preferences and orientations of individual consumers, voters, etc.
(=receivers).
What are the positive and normative implications?
Identi…ed determinants: Implications depend on whether
– there is (intense) competition among senders;
– receivers make individual or collective decisions (voting);
– …rms are able to personalize prices;
– receivers are wary of the senders’incentives to become better informed.
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Sketch of the Model
1. Senders decide whether to acquire better information about receiver preferences.
(Absent regulation this is not observed by receivers.)
2. Senders and receivers play a disclosure game. Notably, we consider two "classic"
speci…cations of selective disclosure:
Selective Non-Disclosure: Sender can increase probability of becoming informed about
receiver preferences and then, if informed, decide whether or not to disclose (Dye 1985,
Jun/Kwon 1998, Shavell 1994).
Selective Targeted Disclosure: Sender can decide whether to observe preferences and then
which of two attributes to disclose (continuous version of Fishman/Hagerty 1990).
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Sketch of the Model
1. Senders decide whether to acquire better information about receiver preferences.
(Absent regulation this is not observed by receivers.)
2. Senders and receivers play a disclosure game. Notably, we consider two "classic"
speci…cations of selective disclosure:
Selective Non-Disclosure: Sender can increase probability of becoming informed about receiver preferences and then, if informed, decide whether or not disclose (Dye 1985, Jun/Kwon
1998, Shavell 1994).
Selective Targeted Disclosure: Sender can decide whether to observe preferences and then
which of two attributes to disclose (continuous version of Fishman/Hagerty 1990).
Note: No full unravelling (as in Grossman 1981, Milgrom 1981), as
– seller may be uninformed;
– or there is limited scope for full disclosure (due to costly/limited airtime, screen space, or
limited attention).
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Non-Disclosure: Setting
Single receiver must make decision between M
2 alternatives:
Respective utility um is independently distributed according to Fm(um) with
expectation E [um].
Sender m learns about um with probability m and then decides whether or not
to disclose the respective information to the receiver.
Sender gains when own alternative is chosen.
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Non-Disclosure: Wary Receiver
De…nition for now: Knows likelihood
ences (u).
= m with which sender learns prefer-
Equilibrium "threshold" disclosure strategy:
– No information when sender has not learnt anything,
– but also no information when sender has learnt but u < ud:
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Non-Disclosure: Wary Receiver
De…nition for now: Knows likelihood
ences (u).
= m with which sender learns prefer-
Equilibrium "threshold" disclosure strategy:
– No information when sender has not learnt anything,
– but also no information when sender has learnt but u < ud:
Wary receiver’s (updated) expected utility U :
– If information is disclosed: U = u
– If not disclosed: U = (1
)E [u] + E [u j u
ud]:
Ex-ante distribution of U : G(U )
–> How does this change in likelihood that sender is informed?
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Non-Disclosure: Naive Receiver
Misperceives likelihood with which sender learns his preferences:
–> Misperceives likelihood with which non-disclosure is strategic!
b : Ex-ante distribution G(U
b ).
Perceived utility U
–> How does this change in likelihood that sender is informed?
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Targeted Disclosure (1)
Product with two attributes, i = 1; 2, which can be disclosed:
–> Unravelling avoided as disclosure of both attributes not feasible/too costly.
Selective = Choice of disclosed attribute, based on knowledge of receiver preferences.
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Targeted Disclosure (2)
Short-cut formalization of non-targeted disclosure
– Disclose same attribute (e.g. i = 1) independently of receiver.
– Perceived utility when respective u1 disclosed: U = u1 + E [u2] (additive).
– Ex-ante distribution of U : G(U ) = F 1 U
E [u2] :
Possible alternative foundation: "2 Salop circles"
[Location of product attributes & receiver preference –> Distances]
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Targeted Disclosure (3)
With targeted disclosure, disclose "best …t": maxi=1;2 ui.
Wary receiver: Perceived utility: U = ui + E [uj j uj
b = ui + E [uj ].
Unwary/Naive receiver: U
ui]:
b ) change as sender becomes
Again ask: How does ex-ante distribution of U (U
better informed?
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General Properties of (More) Selective Disclosure
Receiver is aware: G(U ) changes in the sense of a Single-Crossing, MeanPreserving Spread.
b ) changes in the sense of First-Order StoReceiver remains unaware: G(U
chastic Dominance.
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Targeted Disclosure: Uniform Distribution
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Selective Non-Disclosure: Uniform Distribution
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Analysis: Two Clear-Cut Cases (1)
1. Naive/unwary consumers, personalized pricing and monopoly:
Firm always prefers to become better informed [and consumer naively does
not anticipate this] and exploits in‡ated valuation of consumer.
(Consumer) Welfare higher when practice prohibited.
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Analysis: Two Clear-Cut Cases (2)
2. Wary consumers/receivers and no personalized pricing:
Receivers always bene…t when senders better informed.
[Intuition: SCMPS and binary yes/no decision over each alternative.]
Thus, prohibition reduces (consumer) welfare.
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Analysis: Two Clear-Cut Cases (2)
2. Wary consumers/receivers and no personalized pricing:
Receivers always bene…t when senders better informed.
[Intuition: SCMPS and binary yes/no decision over each alternative.]
Thus, prohibition reduces (consumer) welfare.
Interesting twist: Even light-touch regulation (asking for receiver consent) can
reduce (consumer) welfare.
If sender cannot commit not to become better informed, he will always become
better informed and disclose more selectively ["o¤ equilibrium" FOSD shift].
But a sender who could commit would become better informed only if competition is weak ["mass vs. niche market" intuition].
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Role of Personalized Pricing (selected results)
Firms always choose to become better informed and disclose more selectively.
[Additional bene…t: Increased (horizontal) di¤erentiation.]
Even wary consumers can be hurt.
Clear-cut comparison: With M = 2, consumer realizes
–> no personalized pricing: max[U1; U2]
–> with personalized pricing: min [U1; U2]
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Role of Competition (selected results)
Wary consumers/receivers:
Always better o¤, even with personalized pricing, when competition is su¢ ciently
intense (high M ).
Naive consumers/receivers: Symmetric competition "debiases" decision making.
– Then same decision made as wary receivers,
– and with personalized pricing even better o¤ [less perceived di¤erentiation of
…rms].
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Short Summary
Framework for studying the implications when …rms/campaigners collect more
personal information for personalized communication (here: disclosure).
[Applications: Targeted disclosure and selective non-disclosure.]
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Short Summary of Presented Results
Framework for studying the implications when …rms/campaigners collect more
personal information for personalized communication (here: disclosure).
[Applications: Targeted disclosure and selective non-disclosure.]
Some insights for policy and regulation:
– When receivers are aware of this, a seemingly more distorted communication
is actually more informative.
–> Even light-tough regulation may back…re.
– When receivers are/remain unwary of this, there is scope for exploitation,
notably with personalized pricing.
– But competition acts as a remedy - through various channels!
Ask: 1) Awareness? 2) Competition? 3) Scope for personalized pricing?
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Collective Decision Making: Changes?
Considered application: Voting (with iid preferences).
Key change: Expected utility depends also on likelihood of being pivotal.
–> How does this change when campaigners use personal information for communication to other voters?
Side aspect: Possible negative externality from presence of unwary voters.
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Persuasion through Selective Disclosure:
Implications for Marketing, Campaigning, and Privacy Regulation
Florian Ho¤mann, Frankfurt
Roman Inderst, Frankfurt & Imperial College London
Marco Ottaviani, Bocconi