Trust in Signals and the Origins of Disagreement

Ing-Haw Cheng () and Alice Hsiaw
Additional contact information
Ing-Haw Cheng: Tuck School of Business, Dartmouth College

No 110R4, Working Papers from Brandeis University, Department of Economics and International Business School

Abstract: Why do individuals interpret the same information differently? We propose that individuals follow Bayes’ Rule when forming posteriors with one exception: when assessing the credibility of signal sources, they “double-dip” the data and use alreadyupdated beliefs instead of their priors. Individuals who make this mistake either overor underreact to new information depending on the order in which they received previous signals. Traders engage in excessive speculation associated with price bubbles and crashes. Our model provides a theory of the origins of disagreement: individuals disagree about both unknown states and credibility despite sharing common priors and information.

Keywords: disagreement; learning; expectations; speculation; bubbles (search for similar items in EconPapers)
Pages: 85 pages
Date: 2016-10, Revised 2018-12
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.brandeis.edu/economics/RePEc/brd/doc/Brandeis_WP110R4.pdf (application/pdf)

Related works:
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:brd:wpaper:110r4

Access Statistics for this paper

More papers in Working Papers from Brandeis University, Department of Economics and International Business School Contact information at EDIRC.
Bibliographic data for series maintained by Andrea Luna ().