Disclosure to a Psychological Audience

Should a well-intentioned advisor always tell the whole truth? In standard economics, the answer is yes (Blackwell (1953)), but in the world of psychological preferences (Geanakoplos, Pearce, and Stacchetti (1989))—where a listener’s state of mind has a direct impact on his well-being—things are not so simple. In this paper, we study how a benevolent principal should disclose information to a psychological agent. After characterizing attitudes toward information, we study optimal information disclosure. Psychological aversion to information is of particular interest. We show that, for information-averse agents, the principal may simply provide information in the form of a recommended action. Next, we study how the optimal policy changes with informationaversion. We also offer general tools of optimal disclosure. We apply our results to choices under prior-bias and cognitive dissonance; consumption-saving decisions with temptation and self-control problems (Gul and Pesendorfer (2001)); and doctor-patient relationships. ∗We thank David Pearce for his comments as well as seminar audiences at Penn State University and Princeton. Email: [email protected] and [email protected] †Address: Economics department, 19 West 4th St., New York, NY 10012.