Belief adjustment: a double hurdle model and experimental evidence

Timo Henckel (), Gordon D. Menzies, Peter Moffatt and Daniel Zizzo
Additional contact information
Gordon D. Menzies: University of Technology Sydney

Experimental Economics, 2022, vol. 25, issue 1, No 2, 26-67

Abstract: Abstract We present an experiment where subjects sequentially receive signals about the true state of the world and need to form beliefs about which one is true, with payoffs related to reported beliefs. We attempt to control for risk aversion using the Offerman et al. (Rev Econ Stud 76(4):1461–1489, 2009) technique. Against the baseline of Bayesian updating, we test for belief adjustment underreaction and overreaction and model the decision making process of the agent as a double hurdle model where agents with inferential expectations first decide whether to adjust their beliefs and then, if so, decide by how much. We also test the effects of increased inattention and complexity on belief updating. We find evidence for periods of belief inertia interspersed with belief adjustment. This is due to a combination of random belief adjustment; state-dependent belief adjustment, with many subjects requiring considerable evidence to change their beliefs; and quasi-Bayesian belief adjustment, with aggregate insufficient belief adjustment when a belief change does occur. Inattention, like complexity, makes subjects less likely to adjust their stated beliefs, while inattention additionally discourages full adjustment.

Keywords: Belief revision; Expectations; Overreaction; Underreaction; Inattention; Complexity (search for similar items in EconPapers)
JEL-codes: C34 C91 D03 D84 E03 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://link.springer.com/10.1007/s10683-021-09701-2 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
Working Paper: Belief adjustment: A double hurdle model and experimental evidence (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:expeco:v:25:y:2022:i:1:d:10.1007_s10683-021-09701-2

Ordering information: This journal article can be ordered from
http://www.springer. ... ry/journal/10683/PS2

DOI: 10.1007/s10683-021-09701-2

Access Statistics for this article

Experimental Economics is currently edited by David J. Cooper, Lata Gangadharan and Charles N. Noussair

More articles in Experimental Economics from Springer, Economic Science Association Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().