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Belief updating: Does the 'good-news, bad-news' asymmetry extend to purely financial domains?

Kai Barron

Discussion Papers, Research Unit: Economics of Change from WZB Berlin Social Science Center

Abstract: Bayes' statistical rule remains the status quo for modeling belief updating in both normative and descriptive models of behavior under uncertainty. Some recent research has questioned the use of Bayes' rule in descriptive models of behavior, presenting evidence that people overweight 'good news' relative to 'bad news' when updating ego-relevant beliefs. In this paper, we present experimental evidence testing whether this 'good-news, bad-news' effect is present in a financial decision making context (i.e. a domain that is important for understanding much economic decision making). We find no evidence of asymmetric updating in this domain. In contrast, in our experiment, belief updating is close to the Bayesian benchmark on average. However, we show that this average behavior masks substantial heterogeneity in individual updating behavior. We find no evidence in support of a sizeable subgroup of asymmetric updators.

Keywords: economic experiments; Bayes' rule; belief updating; belief measurement; proper scoring rules; motivated beliefs (search for similar items in EconPapers)
JEL-codes: C11 C91 D83 (search for similar items in EconPapers)
Date: 2019, Revised 2019
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Belief updating: does the ‘good-news, bad-news’ asymmetry extend to purely financial domains? (2021) Downloads
Journal Article: Belief updating: does the 'good-news, bad-news' asymmetry extend to purely financial domains? (2021) Downloads
Working Paper: Belief updating: Does the 'good-news, bad-news' asymmetry extend to purely financial domains? (2020) Downloads
Working Paper: Belief Updating: Does the \'Good-News, Bad-News\' Asymmetry Extend to Purely Financial Domains? (2019) Downloads
Working Paper: Belief updating: Does the 'good-news, bad-news' asymmetry extend to purely financial domains? (2018) Downloads
Working Paper: Belief updating: Does the 'good-news, bad-news' asymmetry extend to purely financial domains? (2016)
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