Information Characteristics and Errors in Expectations: Experimental Evidence

We design an experiment to test the hypothesis that, in violation of Bayes’ rule, some people respond more forcefully to the strength of information than to its weight. We provide incentives to motivate effort, use naturally occurring information, and control for risk attitude. We find that the stre...

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Bibliographic Details
Published in:Journal of financial and quantitative analysis 2017-04, Vol.52 (2), p.737-750
Main Authors: Antoniou, Constantinos, Harrison, Glenn W., Lau, Morten I., Read, Daniel
Format: Article
Language:English
Subjects:
Attitudes
Behavior
Behavioral economics
Bias
Business schools
Decision theory
Experiments
Hypotheses
Probability
Quantitative analysis
Utility functions
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Summary:We design an experiment to test the hypothesis that, in violation of Bayes’ rule, some people respond more forcefully to the strength of information than to its weight. We provide incentives to motivate effort, use naturally occurring information, and control for risk attitude. We find that the strength–weight bias affects expectations but that its magnitude is significantly lower than originally reported. Controls for nonlinear utility further reduce the bias. Our results suggest that incentive compatibility and controls for risk attitude considerably affect inferences on errors in expectations.
ISSN:0022-1090
1756-6916
DOI:10.1017/S0022109017000035