Voluntary Disclosure with or without an Antifraud Rule : An Experimental Study

Abstract

This paper presents the results of 16 experimental markets designed to test the theoretical model which states that, when disclosures are credible and costless, full disclosure of private information will be induced so as not to be interpreted as having the worst news. This experiment conducted two manipulations, and produced a 2x2 factorial cell design. The manipulations focused on (1) the number of realization values and (2) the presence/absence of an antifraud rule. The former manipulation was due to our questions about prior experimental studies. The latter was due to our interest in an antifraud rule posited as a critical condition in the models. The cells with an antifraud rule also were set up as the benchmark for those without an antifraud rule. Our results generally support the theoretical hypotheses and behavioral forecasts, and provide some interesting findings.