Obfuscation, Learning, and the Evolution of Investor Sophistication / Bruce Ian Carlin, Gustavo Manso.

Format:

Book

Author/Creator:

Carlin, Bruce Ian.

Contributor:

National Bureau of Economic Research.

Manso, Gustavo.

Series:

Working Paper Series (National Bureau of Economic Research) no. w14954.

NBER working paper series no. w14954

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2009.

Summary:

Investor sophistication has lagged behind the growing complexity of retail financial markets. To explore this, we develop a dynamic model to study the interaction between obfuscation and investor sophistication. Taking into account different learning mechanisms within the investor population, we characterize the optimal timing of obfuscation for financial institutions who offer retail products. Obfuscation decreases with competition among firms, but increases with higher investor participation in the market. We show that educational initiatives that are directed to facilitate learning by investors may induce producers to increase wasteful obfuscation, further disorienting investors and decreasing overall welfare.

Notes:

Print version record

May 2009.