On attention to information: The checking paradox

Yefim Roth and Ofir Yakobi

Chapter 10 in Handbook of Experimental Finance, 2022, pp 105-116 from Edward Elgar Publishing

Abstract: The behavioral finance literature highlights two apparently contradictory behaviors, both of which presumably lead to impaired returns for investors - under - and overreaction to information. The coexistence of these opposing biases suggests a paradox. Building on the decisions-from-experience (DFE) literature, and specifically two recent papers on "checking decisions" - i.e., deciding whether to acquire information when that comes at a cost (Roth et al. 2016, Roth 2020) - we show that both biases can be explained by sensitivity to the most common outcome, implying regret minimization.

Keywords: Economics and Finance (search for similar items in EconPapers)
Date: 2022
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