Information Characteristics and Errors in Expectations: Experimental Evidence

Constantinos Antoniou (), Glenn Harrison, Morten Lau and Daniel Read ()
Additional contact information
Constantinos Antoniou: University of Warwick
Daniel Read: University of Warwick

No 9387, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: 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.

Keywords: experimental finance; market efficiency; behavioral biases (search for similar items in EconPapers)
JEL-codes: D81 D84 G11 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2015-09
New Economics Papers: this item is included in nep-cbe, nep-cfn, nep-exp and nep-upt
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Published - published in: Journal of Financial and Quantitative Analysis, 2017, 52 (2), 737-750

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Journal Article: Information Characteristics and Errors in Expectations: Experimental Evidence (2017)
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