Wishful thinking

Guy Mayraz

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: An experiment tested whether and in what circumstances people are more likely to believe an event simply because it makes them better off. Subjects observed a financial asset's historical price chart, and received both an accuracy bonus for predicting the price at some future point, and an unconditional award that was either increasing or decreasing in this price. Despite incentives for hedging, subjects gaining from high prices made significantly higher predictions than those gaining from low prices. The magnitude of the bias was smaller in charts with less subjective uncertainty, but was independent of the amount paid for accurate predictions.

Keywords: wishful-thinking; optimal expectations; priors and desires; payoff-dependent beliefs; asset prices; wellbeing (search for similar items in EconPapers)
JEL-codes: D01 D81 D84 G11 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2011-11-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:121942

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