This chapter considers the challenges that information anxiety (or fear of information overload) poses to the regulation of capital markets. It first summarizes key phenomena that cause information anxiety, such as the ratcheting of disclosure, complexity in financial innovation, and the disintermediation and fragmentation of information chains. It then reviews the behavioral finance literature regarding how information anxiety may lead to suboptimal decision-making by professional and non-professional users, originators, intermediaries and monitors. It then critiques policy proposals for combatting information anxiety, such as paternalistic limitations on product offerings and heightened professional duties of care through business conduct regulation. The chapter ends with an assessment of how policy makers might alleviate information anxiety through policies that liberalize the analysis of information flows.
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