TY  - JOUR
AU  - Carlin,Bruce Ian
AU  - Manso,Gustavo
TI  - Obfuscation, Learning, and the Evolution of Investor Sophistication
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14954
PY  - 2009
Y2  - May 2009
UR  - http://www.nber.org/papers/w14954
L1  - http://www.nber.org/papers/w14954.pdf
N1  - Author contact info:
Bruce I. Carlin
Anderson Graduate School of Management
UCLA
110 Westwood Plaza, Suite C413
Los Angeles, CA 90095-1481
Tel: 310/825-7246
E-Mail: bruce.carlin@anderson.ucla.edu

Gustavo Manso
MIT
Sloan School
E-Mail: manso@mit.edu
AB  - 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.
ER  -