THE PROBLEM OF ‘NO NEWS IS BAD NEWS’: HOW EXPERTS AND POLICY-MAKERS SHOULD COMMUNICATE INFORMATION IN ANXIOUS TIMES

Research published in the July 2004 Economic Journal provides a new way of thinking about how experts and policy-makers should disclose potentially psychologically damaging information – whether it’s a doctor passing on test results to a patient or a government warning the public about terrorism threats.

The study by Professors Andrew Caplin and John Leahy shows that once we allow for the emotional impact that information may have, the standard conclusion that all information should be passed on no longer applies. The policy-maker may wish to suppress potentially psychologically damaging information.

Yet information suppression may be hard to achieve. Since there is a strong temptation to pass on good news immediately, there is a ‘no news is bad news’ effect. Many of us have experienced this effect in practice, when we immediately receive positive results from health tests, but are instructed to come to a meeting with the doctor in order to hear bad results. The mere fact that we are so instructed conveys the bad news.

Given this, the researchers argue, there are settings in which the provision of information should be automated, in order to ensure that these empathic incentives are taken out of the picture.

Economists have traditionally been unconcerned with emotional responses to information, treating questions of information provision purely in terms of functionality. This makes questions of information transmission straightforward. According to the standard functional approach to information, a policy-maker should immediately pass on all information to private citizens, since the information can only ever help, by improving the quality of decision-making.

In the current age of terror, the standard functional approach to information provision suggests that policy-makers should constantly pass on all threat-related information they receive, regardless of how vague. In practice, they choose to withhold much information, with the idea that it would create needless anxiety.

The goal of this research is to bring information economics up-to-date with the anxious times in which we live. Caplin and Leahy present the first framework allowing policy-makers to design information transmission strategies when the information conveyed has emotional as well as functional impact.

By incorporating emotions, the framework is suitable not only for questions about the optimal transmission of terrorism threats, but also questions like whether bank regulators should immediately pass on new information about systemic credit risk to a worried public, and whether doctors should provide health information to potentially anxious patients. It is this health-related issue that the study explores in depth.

The research provides a timely starting point for those interested in the design of psychologically attuned processes of information provision. The approach can be extended to address questions such as the optimal testing strategies for emotionally traumatic diseases such as AIDS and breast cancer.

In addition to its substantive contributions, the study makes a methodological contribution. The questions addressed can be answered only by going beyond the standard economic approach to policy design.

According to the currently standard approach, the policy-maker’s goal is to respect private preferences as revealed through choice behaviour. If one individual chooses to buy apples rather than similarly priced bananas, then the policy-maker should respect this preference. The more general counterpart to this is enshrined in the principle of ‘revealed preference’, according to which private choice is the only legitimate basis for policy choice.

What makes questions of emotionally salient information provision interesting is that they cannot be understood within this classical framework. The policy-maker must choose between options that are not available to the private citizen, in particular by choosing whether or not to leave an illusion intact.

In intuitive terms, the insufficiency of the standard approach can be understood readily in the example of a patient whom the doctor knows to be naively optimistic concerning future health prospects. The doctor may know through observation of prior choices that the patient has a general preference for receiving health information early. Yet these choices are mute as to whether or not this same preference would survive if the news was sure to be bad, as the doctor knows it to be. The patient may wish to resolve uncertainty, but that does not imply a preference for getting specifically bad news early.

Decisions on whether or not to leave intact potentially utility-relevant illusions cannot be based on preferences revealed through private choice. As economists develop richer models of information provision, they will have to abandon a principle that has guided their thoughts for more than a century.

ENDS

Note for Editors: ‘The Supply of Information by a Concerned Expert’ by Andrew Caplin and John Leahy is published in the July 2004 issue of the Economic Journal.

The authors are at New York University.

For Further Information: contact Andrew Caplin on +1-212-998-8950 (email: andrew.caplin@nyu.edu; website: http://www.econ.nyu.edu/user/caplina/); or RES Media Consultant Romesh Vaitilingam on 0117-983-9770 or 07768-661095 (email: romesh@compuserve.com).