Information characteristics and errors in expectations : experimental evidence

Constantinos Antoniou; Glenn Harrison; Morten I. Lau; Daniel Read

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 non-linear utility further reduce the bias. Our results suggest that incentive compatibility and controls for risk attitude considerably affect inferences on errors in expectations.

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Year of publication:	2015
Authors:	Antoniou, Constantinos ; Harrison, Glenn W. ; Igel Lau, Morten ; Read, Daniel
Publisher:	Bonn : IZA
Subject:	behavioral biases \| market efficiency \| experimental finance \| Experiment \| Effizienzmarkthypothese \| Efficient market hypothesis \| Informationsverhalten \| Information behaviour \| Anlageverhalten \| Behavioural finance \| Theorie \| Theory \| Bayes-Statistik \| Bayesian inference