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on Experimental Economics |
| By: | Adriana Breaban (Chapman University and Erasmus University of Rotterdam); Charles N. Noussair (University of Arizona); Andreea Victoria Popescu (Tilburg University) |
| Abstract: | Competition for a prize frequently takes the form of dedicating time toward winning a contest. Those who spend the most time become more likely to obtain the prize. We model this competition as an all-pay auction under incomplete information, and report an experiment in which expenditures and rewards are in terms of time. In the experiment, subjects must stay in the laboratory doing nothing for an initially prespecified length of time. However, they can bid, in terms of time, to leave early. The auction has an allpay structure so that if an individual does not submit the highest bid within her group, she must stay for the additional time that she bid. We correlate behavior in this game with behavior in an isomorphic all-pay auction played with money bids. We also consider how two measures of sophistication, the Cognitive Reflection Test (CRT) score, and performance on a probability calibration task, correlate with behavior. We find strong similarities in overall behavior between the auctions conducted with money and with time. Bidding greater than equilibrium levels is typical, and as a consequence, average earnings are negative in both auctions. Thus, the result that there is overdissipation of rent in all-pay auctions extends to competition in terms of time. Higher CRT score and more accurate probability calibration correlate with better decisions in auctions played for money but not those played for time. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:18-20&r=all |
| By: | Michalis Drouvelis; Nikolaos Georgantzis |
| Abstract: | Many modern organisations collect data on individuals’ personality traits as part of their human resource selection processes. We test experimentally whether revealing information on personality data impacts on pro-social behaviour as measured in a one-shot modified dictator game and a public goods game. Our focus is on the personality trait of agreeableness which has been shown to be a significant determinant of pro-sociality. We provide new evidence that revealing personality information for disagreeable individuals has detrimental effects on their pro-social behaviour as compared to the baseline no-information benchmark. This is not the case, however, for agreeable individuals when they are matched with agreeable individuals. Agreeable individuals become less pro-social when matched with disagreeable individuals and are aware of this. Our results suggest that information cues about personality significantly affect economic behaviour and have implications for employees’ personality assessments as part of standard hiring processes. |
| Keywords: | personality, social preferences, inequity aversion, cooperation, laboratory experiment |
| JEL: | C91 D70 H41 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7538&r=all |
| By: | Barron, Kai; Nurminen, Tuomas |
| Abstract: | This paper experimentally studies two simple interventions aimed at increasing public goods provision in settings in which accurate feedback about contributions is not available. The first intervention aims to exploit lying aversion by requiring subjects to send a non-verifiable ex post announcement about their contribution. The second intervention aims to nudge participants to higher contribution levels by simply labeling contributions of 16 or above as being ‘good’. We find that the ex post announcement mechanism does not have a significant effect on the cooperation rate. However, the nudge leads to a striking increase in the cooperation rate. We provide suggestive evidence that the nudge we use provides subjects with a focal point, helping conditional cooperators to coordinate their contributions. Moreover, despite the lack of monetary incentives to lie, we find that a non-negligible group of subjects inflate their anonymous announcements. |
| Keywords: | cooperation,nudge,public good,experiment,lying,focal point |
| JEL: | C91 C72 H41 Z13 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wzbeoc:spii2018305&r=all |
| By: | Daniel E. Chavez (University of Kentucky, Department of Marketing and Supply Chain); Marco A. Palma (Texas A&M University, Department of Agricultural Economics); Rodolfo M. Nayga Jr. (University of Arkansas, Department of Agricultural Economics and Agribusiness) |
| Abstract: | The proneness of stated preference methods to hypothetical bias has increased the popularity of incentivized studies, in particular the use of real choice experiments (RCE). Challenges of RCE include the lack of engagement with the choice task by some subjects, and that some of the product alternatives may not be available in order to incentivize all the choices. This issue brings to question whether the proportion of available products influences the results of the RCE. Would the subjects' engagement change? Using an induced value choice experiment with a profit maximization optimal strategy for agents, we varied the number of potentially binding alternatives in four treatments. Our results suggest that incentives matter, as the percentage of optimal choices was lowest in the hypothetical treatment. Interestingly, however, we do not find statistically significant differences in the number of optimal choices between the incentivized treatments, regardless of the number of potentially binding alternatives used in our treatments. This suggests that practitioners could conduct incentivized RCE without the need to have all the product alternatives be made available in the study. Furthermore, we explore the interaction of incentives with subjects' numerical ability and individual reflective state. Both are also shown to influence how incentives impact performance, shedding some light on what individual characteristics to look for when conducting valuation research. |
| Keywords: | Choice Experiments, Eye Tracking, Hypothetical bias, Induced values. |
| JEL: | C91 C18 |
| URL: | http://d.repec.org/n?u=RePEc:txm:wpaper:20190306-001&r=all |
| By: | Güth, Werner; Stadler, Manfred; Zaby, Alexandra |
| Abstract: | In capacity-then-price-setting games, soft capacity constraints are planned sales amounts where producing above capacity is possible but more costly. While the subgame perfect equilibrium predicts equal prices, experimental evidence often reveals price discrepancies. This failure to coordinate on equal prices can imply losses, especially when serving demand is obligatory. We compare coordination failure with efficient rationing as well as with compulsory serving of demand, and additionally allow for simultaneous and sequential capacity choices. These treatments lead to a varying severity of the threat of losses. Our experimental results show that (possible) coordination failure affects behavior through two channels: via anticipating as well as via reacting to a loss. While capacities increase in anticipation of losses, prices increase when anticipating losses but decrease after experiencing losses. Coordination failures are more probable after subjects experienced a loss. |
| Keywords: | capacity-then-price competition,loss avoidance,path dependence,sequentiality of decisions,intra-play communication |
| JEL: | C72 C91 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tuewef:116&r=all |
| By: | Hinnosaar, Marit; Hinnosaar, Toomas; Kummer, Michael; Slivko, Olga |
| Abstract: | Do contributions to online content platforms induce a feedback loop of ever more user-generated content or will they discourage future contributions? To assess this, we use a randomized field experiment which added content to some pages in Wikipedia while leaving similar pages unchanged. We find that adding content has a negligible impact on the subsequent long-run growth of content. Our results have implications for information seeding and incentivizing contributions, implying that additional content does not generate sizable externalities, neither by inspiring nor by discouraging future contributions. |
| Keywords: | knowledge accumulation; User-generated content; Wikipedia |
| JEL: | C93 L17 L86 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13575&r=all |
| By: | Florian Zimmermann |
| Abstract: | A key question in the literature on motivated reasoning and self-deception is how motivated beliefs are sustained in the presence of feedback. In this paper, we explore dynamic motivated belief patterns after feedback. We establish that positive feedback has a persistent effect on beliefs. Negative feedback, instead, influences beliefs in the short-run, but this effect fades over time. We investigate the mechanisms of this dynamic pattern, and provide evidence for an asymmetry in the recall of feedback. Finally, we establish that, in line with theoretical accounts, incentives for belief accuracy mitigate the role of motivated reasoning. |
| Keywords: | Motivated Beliefs, Feedback, Self-Deception, Overconfidence, Selective Recall, Memory, Polarization, Experiments |
| JEL: | C91 D03 D12 D83 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2019_073&r=all |
| By: | Quentin Coutellier; Greer Gosnell; Ralf Martin; Mirabelle Muûls; Goran Strbac; Mingyang Sun; Simon Tindermans |
| Abstract: | We report first results from a large scale randomized control trial of different forms of energy consumption feedback facilitated by smart meters and smart phone feedback apps. Nearly 40,000 customers of a large energy retailer in the UK were exposed to either very basic feedback apps - i.e. simply giving consumers access to monthly energy consumption - or more advanced feedback involving peer group comparisons as well as dis-aggregation of total electricity consumption. We find that more advanced feedback can lead to an average consumption reduction of nearly 4% (Intent to Treat). Taking into account that a large number of customers never sign in to any feedback apps suggests that the reduction effect among customers that do sign in is up to 12%. The smart meter installation was implemented by different installation firms across our sample and we find the reduction effect only for one customers of one installer who displays higher capabilities along a number of metrics. This could suggest that achieving energy preservation objectives does not only depend on the technology involved but also on the capabilities and skills of firms installing those technologies. In the UK, smart meters are by default installed with In Home Displays (IHD) that provide real time feedback on energy use. Some of the customers in our sample did not receive an IHD and we explore if this had any impact on the consumption reduction effect described above. Customers with (and without) IHD comprise a self-selected sample so we have to be careful in drawing causal conclusions. However, we do not find any evidence that any energy reducing effect is contingent on IHDs. |
| Keywords: | behavioural intervention, household energy demand, randomised controlled trial, information |
| JEL: | D12 Q48 Q54 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1602&r=all |
| By: | Hélia Marreiros (Universidade Católica Portuguesa, Católica Porto Business School and CEGE) |
| Abstract: | We experimentally investigate the welfare implications of two distinct output sharing rules in partnerships with a heterogeneous composition. In particular the paper examines the tradeoff between the potential benefits of a simple equal output sharing rule and a distribution rule that maximizes total welfare, the second best sharing rule. This output sharing rule, which is recommended, is unequal in heterogeneous production groups. The experimental setup is based on a team production technology model, where Nash equilibrium contributions are located in the interior of the set of feasible contributions. The results confirm that second best output sharing rules give higher welfare than equal ones when the two are different. Then, there is a trade off to be considered, when deciding on the team composition (the equal sharing rule is second best optimal in homogeneous partnerships), and when deciding the sharing rule given the group composition. We also find that the experimentally created wealth with equal sharing is higher than the anticipated from pure rational behavior because less skilled collaborating partners contribute with more input than anticipated. This is interpreted as evidence that less productive partners perceive a sense of unfairness when receive a similar share of output than the more productive ones, and decide to correspond with higher input contribution. |
| Keywords: | PPartnerships; Team Production, Incentives; Efficiency; Equality; Experiment |
| JEL: | C92 D63 J33 M52 |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:cap:wpaper:012019&r=all |
| By: | M. Bigoni; S. Bortolotti; V. Rattini |
| Abstract: | We study how differences in socio-economic background correlate with preferences and beliefs, in a sample of college students born in a mid-sized Italian city. Our findings indicate that participants living in an area characterized by a high socio-economic environment tend to trust more and are more inclined to reciprocate higher levels of trust, as compared to those coming from less wealthy neighborhoods. This behavioral difference is, at least in part, driven by heterogeneities in beliefs: subjects from the most affluent part of the city have more optimistic expectations on their counterpart's trustworthiness than those living in a lower socio-economic environment. By contrast, no significant differences emerge in other preferences: generosity, risk-attitudes, and time preferences. Finally, we do not find any systematic evidence of out-group discrimination based on neighborhood identity. |
| JEL: | C90 D31 D63 R23 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp1128&r=all |
| By: | Brañas-Garza, Pablo; Chowdhury, Subhasish; Espín, Antonio M.; Nieboer, Jeroen |
| Abstract: | It is documented that fetal exposure to sexual hormones has long lasting effects on human behavior. The second-to-fourth digit ratio (DR) is a putative marker for prenatal exposure to testosterone (compared to estrogens) while in uterus, with higher relative exposure to testosterone resulting in a lower DR. Although the existing literature documents the correlation of DR with various decisions, and testosterone has been related to competitive behaviors, little research has studied the effect of DR on competition in conflict situations where skills do not matter. We investigate this question in the laboratory. Based on a previously obtained large sample of student subjects, we selectively invite subjects to the laboratory if their right-hand DR is in the top (High type) or bottom (Low type) tercile for their gender. Unbeknownst to the subjects, we perform a controlled match of High and Low types as opponents in a 2-person Tullock contest. We find that Low type (higher exposure to testosterone) males expend significantly higher conflict effort than High type males, that is, they are more aggressive, which reduces their opponents’ earnings. Among females, however, everyone is more aggressive against the High type (who respond less aggressively). These results can partially be explained through high joy of winning and/or spitefulness for Low type males, and high spitefulness for Low type females. This investigation sheds light on the importance of biological aspects in the ex-ante determinants of conflict, and on contest design. |
| Keywords: | Digit Ratio; Contest; Conflict; Gender: Lab Experiments |
| JEL: | C72 C91 |
| Date: | 2019–03–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:92663&r=all |
| By: | Lergetporer, Philipp (ifo Institute at the University of Munich; CESifo); Woessmann, Ludger (: University of Munich and ifo Institute; CESifo, IZA, and CAGE) |
| Abstract: | Public preferences for charging tuition are important for determining higher education finance. To test whether public support for tuition depends on information and design, we devise several survey experiments in representative samples of the German electorate (N>19,500). The electorate is divided, with a slight plurality opposing tuition. Providing information on the university earnings premium raises support for tuition by 7 percentage points, turning the plurality in favor. The opposition-reducing effect persists two weeks after treatment. Information on fiscal costs and unequal access does not affect public preferences. Designing tuition as deferred income-contingent payments raises support by 16 percentage points, creating a strong majority favoring tuition. The same effect emerges when framed asloan payments. Support decreases with higher tuition levels and increases when targeted at non-EU students. |
| Keywords: | tuition, higher education, political economy, survey experiments, information, earnings premium, income-contingent loans, voting JEL Classification: I22, H52, D72, D83 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:cge:wacage:405&r=all |
| By: | Chaisemartin, Clement de (UC Santa Barbara); Navarrete, Nicolas (Paris School of Economics) |
| Abstract: | A large literature finds that cognitive behavioral therapy programs for disruptive students can reduce their disruptiveness and improve their academic outcomes. However, the literature has mostly considered demonstration programs implemented with significant researcher involvement, and has not studied the spillover effects on ineligible students. In this paper, we use a randomized controlled trial to estimate the direct and spillover effects of one such program, implemented as a nationwide policy in Chile. The program has no effect on eligible students’ disruptiveness and academic outcomes. It increases the disruptiveness of ineligible students. Finally, it increases the segregation between eligible and ineligible students |
| Keywords: | JEL Classification: |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:cge:wacage:401&r=all |
| By: | Roland Bénabou; Armin Falk; Jean Tirole |
| Abstract: | By downplaying externalities, magnifying the cost of moral behavior, or suggesting not being pivotal, exculpatory narratives can allow individuals to maintain a positive image when in fact acting in a morally questionable way. Conversely, responsibilizing narratives can help sustain better social norms. We investigate when narratives emerge from a principal or the actor himself, how they are interpreted and transmitted by others, and when they spread virally. We then turn to how narratives compete with imperatives (general moral rules or precepts) as alternative modes of communication to persuade agents to behave in desirable ways. |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2019_070&r=all |
| By: | Frederik Schwerter; Florian Zimmermann |
| Abstract: | Social interactions pervade daily life and thereby create an abundance of social experiences. Such personal experiences likely shape what we believe and who we are. In this paper, we ask if and how personal experiences from social interactions determine individuals’ inclination to trust others? We implement an experimental environment that allows us to manipulate prior social experiences— either being paid or not being paid by a peer subject for a task—and afterwards measure participant’s willingness to trust others. We contrast this situation with a control condition where we keep all aspects of the prior experiences identical, except that we remove the social dimension. Our key finding is that after positive social experiences, subjects’ willingness to trust is substantially higher relative to subjects who made negative social experiences. No such effect is obtained in the control condition where we removed the social aspect of experiences. Findings from a difference-in-difference analysis confirm this pattern. Our results cannot be explained by rational learning, income effects, pay or social comparison related mood, disappointment aversion and expectations-based or social reference points. Delving into the underlying mechanisms, we provide evidence that non-standard belief patterns are an important driver of experience effects. |
| Keywords: | Determinants of Trust, Experiences, Beliefs, Non-standard Learning, Experiments |
| JEL: | C91 D03 D81 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2019_072&r=all |
| By: | Fabrizio Germano; Vicenç Gómez; Gaël Le Mens |
| Abstract: | Ranking algorithms play a crucial role in online platforms ranging from search engines to recommender systems. In this paper, we identify a surprising consequence of popularity-based rankings: the fewer the items reporting a given signal, the higher the share of the overall traffic they collectively attract. This few-get-richer effect emerges in settings where there are few distinct classes of items (e.g., left-leaning news sources versus right-leaning news sources), and items are ranked based on their popularity. We demonstrate analytically that the few-get-richer effect emerges when people tend to click on top-ranked items and have heterogeneous preferences for the classes of items. Using simulations, we analyze how the strength of the effect changes with assumptions about the setting and human behavior.We also test our predictions experimentally in an online experiment with human participants. Our findings have important implications to understand the spread of misinformation. |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1636&r=all |
| By: | Philipp Lergetporer; Ludger Wößmann |
| Abstract: | Public preferences for charging tuition are important for determining higher education finance. To test whether public support for tuition depends on information and design, we devise several survey experiments in representative samples of the German electorate (N>19,500). The electorate is divided, with a slight plurality opposing tuition. Providing information on the university earnings premium raises support for tuition by 7 percentage points, turning the plurality in favor. The opposition-reducing effect persists two weeks after treatment. Information on fiscal costs and unequal access does not affect public preferences. Designing tuition as deferred income-contingent payments raises support by 16 percentage points, creating a strong majority favoring tuition. The same effect emerges when framed as loan payments. Support decreases with higher tuition levels and increases when targeted at non-EU students. |
| Keywords: | tuition, higher education, political economy, survey experiments, information, earnings premium, income-contingent loans, voting |
| JEL: | I22 H52 D72 D83 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7536&r=all |
| By: | Barron, Kai; Huck, Steffen; Jehiel, Philippe |
| Abstract: | In this paper, we design an investment game which allows us to study the influence of selection when learning from others. Using the theoretical study of selection neglect in Jehiel (2018) as a guide, we test (i) for the presence of selection neglect in this investment context, and (ii) some comparative static predictions of the model. We find strong evidence for selection neglect—even though subjects are fully informed about the data generating process. As theoretically predicted, the degree of bias due to selection neglect increases when other decision makers become more informed, or become more rational. It decreases when signals are correlated. |
| Keywords: | selection neglect,beliefs,overconfidence,experiment,survivorship bias,bounded rationality |
| JEL: | C11 C90 D80 D83 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wzbeoc:spii2019301&r=all |
| By: | Ma, Marshall (Xiaoyin) (Tilburg University, Center For Economic Research); Noussair, Charles (Tilburg University, Center For Economic Research); Renneboog, Luc (Tilburg University, Center For Economic Research) |
| Abstract: | We study the impact of colors of paintings on prices in the art auction market and incorporate color attributes of non-figurative paintings in pricing models. A one standard deviation increase in the percentages of blue (red) hue leads to premiums of 10.63% (4.20%). We also conduct laboratory experiments in China, the Netherlands, and U.S., and elicit participants’ willingness-to-pay and emotions (pleasure-arousal). Blue (red) paintings command 18.57% (17.28%) higher bids and stronger intention to purchase. Although abstract art is visually arousing, it is the emotional pleasure channel that relates colors and prices. Our results are consistent across all three cultures. |
| Keywords: | emotion; auction; art investment; cultural economics |
| JEL: | C91 D44 G02 G11 Z11 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiucen:b628fa65-83cf-41c8-b321-df2fb89f3ebd&r=all |
| By: | Chakravorty, Ujjayant; Dar, Manzoor; Emerick, Kyle |
| Abstract: | We use two randomized controlled trials in 544 villages of rural Bangladesh to study a simple water conservation technology called "Alternate Wetting and Drying (AWD)". The AWD technology is a perforated PVC pipe that allows farmers to observe the water level below ground and thus irrigate their field less often. Even though this technology has shown promising results in numerous agronomic experiments, we find no significant effects on water use and profits. AWD only leads to measurable water savings in villages where farmers pay a volumetric (marginal) price for water, but not in villages where water prices are set by the acre. Building on these findings, the second RCT randomly distributed debit cards that convert farmers from per-acre charges to hourly billing. The debit cards cause demand for AWD to become less price sensitive and farmers to put more value on the technology. Taken together, these results show that introducing a marginal price for water aligns incentives for conservation. |
| JEL: | O13 Q25 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13572&r=all |
| By: | Armin Falk; Johannes Hermle |
| Abstract: | Preferences – concerning time, risk and social interactions – systematically shape human behavior, and contribute to differential economic and social outcomes between the genders. Here, we present a global investigation of gender differences in six fundamental preferences. Our data consist of 80,000 individuals in 76 representative country samples with measures on willingness to take risks, patience, altruism, positive and negative reciprocity as well as trust. Gender differences in preferences were positively related to economic development and gender equality. This suggests that greater availability of and equal access to material and social resources for both genders favor the manifestation of genderdifferentiated preferences across countries. |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2019_071&r=all |
| By: | Luigi Butera; Robert Metcalfe; William Morrison; Dmitry Taubinsky |
| Abstract: | A growing body of empirical work shows that social recognition of individuals' behavior can meaningfully influence individuals’ choices. This paper studies whether social recognition is a socially efficient lever for influencing individuals’ choices. Because social recognition generates utility from esteem to some but disutility from shame to others, it can be either positive-sum, zero-sum, or negative-sum. This depends on whether the social recognition utility function is convex, linear, or concave, respectively. We develop a new revealed preferences methodology to investigate this question, which we deploy in a field experiment on promoting attendance to the YMCA of the Triangle Area. We find that social recognition increases YMCA attendance by 17-23% over a one-month period in our experiment, and our estimated structural models predict that it would increase attendance by 19-23% if it were applied to the whole YMCA of the Triangle Area population. However, we find that the social recognition utility function is significantly concave and thus generates deadweight loss. If our social recognition intervention were applied to the whole YMCA of the Triangle Area population, we estimate that it would generate deadweight loss of $1.23-$2.15 per dollar of behaviorally-equivalent financial incentives. |
| JEL: | D8 D9 H0 I0 |
| Date: | 2019–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:25637&r=all |
| By: | Francesco D'Acunto; Alberto G. Rossi; Michael Weber |
| Abstract: | We document five effects of providing individuals with crowdsourced spending information about their peers (individuals with similar characteristics) through a FinTech app. First, users who spend more than their peers reduce their spending significantly, whereas users who spend less keep constant or increase their spending. Second, users’ distance from their peers’ spend-ing affects the reaction monotonically in both directions. Third, users’ reaction is asymmetric - spending cuts are three times as large as increases. Fourth, lower-income users react more than others. Fifth, discretionary spending drives the reaction in both directions and especially cash withdrawals, which are commonly used for incidental expenses and anonymous transactions. We argue Bayesian updating, peer pressure, or the fact that bad news looms more than (equally-sized) good news cannot alone explain all these facts. |
| Keywords: | FinTech, learning, beliefs and expectations, peer pressure, financial decision-making, saving, consumer finance |
| JEL: | D12 D14 D91 E22 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7533&r=all |
| By: | Leung, B. T. K. |
| Abstract: | This paper studies the information processing behavior of a decision maker (DM) who can only process a subset of all the information he receives: before taking an action, the DM receives sequentially a number of signals and decides whether to process or ignore each of them as it is received. The model generates an information processing behavior consistent with that documented in the psychological literature: first, the DM chooses to process signals that are strong; second, his processing strategy exhibits confirmation bias if he has a strong prior belief; third, he tends to process signals that suggest favorable outcomes (wishful thinking). As an application I analyze how the Internet and the induced change in information availability affects the processing behavior of the DM. I show that providing more/better information to the DM could strengthen his confirming bias. |
| Keywords: | limited ability, information overload, information avoidance, confirmation bias, wishful thinking, polarization |
| JEL: | D83 D90 |
| Date: | 2018–12–06 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1891&r=all |