 Testing models of belief bias: An experimentGames and Economic Behavior, 2019, vol. 113, issue C, 549-565 Abstract: Optimistic beliefs affect important areas of economic decision making, yet direct knowledge on how belief biases operate remains limited. To better understand these biases I introduce a theoretical framework that trades off anticipatory benefits against two potential costs of forming biased beliefs: (1) material costs which result from poor decisions, of Brunnermeier and Parker (2005), and (2) direct psychological costs of distorting reality, of Bracha and Brown (2012). The experiment exploits the potential of the BDM elicitation procedure adopted to lotteries to distort beliefs in different directions, depending on which costs are most important. Relative to an elicitation procedure without distortionary incentives, beliefs are biased in the optimistic direction. Increasing payments for accuracy further increases belief reports, in many cases away from the truth, consistent with psychological costs of belief distortion. Yet the overall results suggest that such theories of optimism fail to explain how beliefs respond to financial incentives. Keywords: Beliefs; Optimism; Pessimism; Overconfidence; Anticipation; Affective expected utility (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:113:y:2019:i:c:p:549-565 DOI: 10.1016/j.geb.2018.11.001 Access Statistics for this article Games and Economic Behavior is currently edited by E. Kalai More articles in Games and Economic Behavior from Elsevier |
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