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The Curse of Knowledge in Economic Settings: An Experimental Analysis

Colin Camerer (), George Loewenstein () and Martin Weber

Journal of Political Economy, 1989, vol. 97, issue 5, 1232-54

Abstract: In economic analyses of asymmetric information, better-informed agents are assumed capable of reproducing the judgments of less-informed agents. The authors discuss a systematic violation of this assumption that they call the "curse of knowledge." Better-informed agents are unable to ignore private information even when it is in their interest to do so; more information is not always better. Comparing judgments made in individual-level and market experiments, they find that market forces reduce the curse by approximately 50 percent, but do not eliminate it. Implications for bargaining, strategic behavior by firms, principal-agent problems, and choice under uncertainty are discussed. Copyright 1989 by University of Chicago Press.

Date: 1989
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Handle: RePEc:ucp:jpolec:v:97:y:1989:i:5:p:1232-54