Preferences for Warning Signal Quality: Experimental Evidence

Alexander Ugarov, Arya Gaduh and Peter McGee

No 34992, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We use a laboratory experiment to study preferences over false-positive and false-negative rates of warning signals for an adverse event with a known prior. We find that subjects decrease their demand with signal quality, but less than predicted by our theory. There is asymmetric under-responsiveness by prior: for a low (high) prior, their willingness-to-pay does not fully adjust for the increase in the false-positive (false-negative) costs. We show that neither risk preference nor Bayesian updating skills can fully explain our results. Our results are most consistent with a decision-making heuristic in which subjects do not distinguish between false-positive and false-negative errors.

JEL-codes: C91 D81 D84 D91 (search for similar items in EconPapers)
Date: 2026-03
New Economics Papers: this item is included in nep-cbe, nep-dcm and nep-exp
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