CeDEx 2021-07: Failure of Unravelling Theory? A natural field experiment on voluntary quality disclosure

Summary

Classic ‘unravelling’ theory holds that buyers should treat with maximal scepticism sellers who withhold
verifiable information relating to their quality, as buyers infer from such non-disclosure that the seller
possesses the lowest possible quality. This study is the first to use a natural field experiment to test this
proposition, and the first to test it in a labour market context. We sent out 12,301 job applications, varying
the information on degree classification – a signal of academic quality – that the applicant presented to
the employer. Our results do not support unravelling theory. Applications which left degree classification
undisclosed were significantly more likely to receive positive responses from employers than those
disclosing the lowest possible degree classification. Employers treated non-disclosing applicants similarly
to those disclosing mid-scale classifications, suggesting the extent to which adverse inference is drawn
from missing information is limited.

A revised version of this paper is published as Discussion Paper 2022/17

Authors

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