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Belief updating and the demand for information

Sandro Ambuehl and Shengwu Li

Games and Economic Behavior, 2018, vol. 109, issue C, 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 appear to be mainly due to non-standard belief updating. 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 explanatory power in two distinct choice environments and are unrelated to proxies for mathematical aptitude.

Keywords: Demand for information; Belief updating; Responsiveness to information; Probability weighting; Experimental economics (search for similar items in EconPapers)
JEL-codes: C91 D01 D03 D83 (search for similar items in EconPapers)
Date: 2018
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