TY - JOUR
T1 - Information Characteristics and Errors in Expectations
T2 - Experimental Evidence
AU - Antoniou, Constantinos
AU - Harrison, Glenn W.
AU - Lau, Morten I.
AU - Read, Daniel
PY - 2017/4
Y1 - 2017/4
N2 - 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.
AB - 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.
U2 - 10.1017/S0022109017000035
DO - 10.1017/S0022109017000035
M3 - Journal article
AN - SCOPUS:85014625870
SN - 0022-1090
VL - 52
SP - 737
EP - 750
JO - Journal of Financial and Quantitative Analysis
JF - Journal of Financial and Quantitative Analysis
IS - 2
ER -