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Belief updating and the demand for information


Ambuehl, Sandro; Li, Shengwu (2018). Belief updating and the demand for information. Games and Economic Behavior, 109:21-39.

Abstract

How do individuals value noisy information that guides economic decisions? In our laboratory experiment, we find that individuals underreact to increasing the informativeness of a signal, thus undervalue high-quality information, and that they disproportionately prefer information that may yield certainty. Both biases are entirely due to non-standard belief updating, rather than due to non-standard risk preferences. We find that individuals differ consistently in their responsiveness to information - the extent that their beliefs move upon observing signals. Individual parameters of responsiveness to information have out-of-sample explanatory power in two distinct choice environments and are unrelated to proxies for mathematical aptitude.

Abstract

How do individuals value noisy information that guides economic decisions? In our laboratory experiment, we find that individuals underreact to increasing the informativeness of a signal, thus undervalue high-quality information, and that they disproportionately prefer information that may yield certainty. Both biases are entirely due to non-standard belief updating, rather than due to non-standard risk preferences. We find that individuals differ consistently in their responsiveness to information - the extent that their beliefs move upon observing signals. Individual parameters of responsiveness to information have out-of-sample explanatory power in two distinct choice environments and are unrelated to proxies for mathematical aptitude.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Uncontrolled Keywords:Demand for information, belief updating, responsiveness to information, probability weighting, experimental economics
Language:English
Date:May 2018
Deposited On:07 Feb 2020 14:22
Last Modified:07 Feb 2020 15:11
Publisher:Elsevier
ISSN:0899-8256
OA Status:Closed
Publisher DOI:https://doi.org/10.1016/j.geb.2017.11.009
Official URL:https://www.sciencedirect.com/science/article/pii/S0899825617302191

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