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Complex Disclosure -- by Ginger Zhe Jin, Michael Luca, Daniel J. Martin

Disclosure policies have the potential to help consumers and make markets more efficient. Yet, the effectiveness of disclosure policies can be undermined if firms strategically make unfavorable information unnecessarily complicated to understand. To explore the incentives for using complexity in disclosure, we implement a game of mandatory disclosure where senders are required to report their private information truthfully, but can choose how complex to make their reports. We find that senders use complex disclosure over half the time, and most of this obfuscation is profitable because receivers make systematic mistakes in assessing complex reports. Stated beliefs suggest that receivers correctly infer the strategic implications of complexity, but are overconfident about their ability to assess complex reports.
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