Journal of Financial and Quantitative Analysis Vol. 52 No. 2 2017

Information Characteristics and Errors in Expectations: Experimental Evidence

Constantinos Antoniou^1,2,3,4; Glenn W. Harrison^1,2,3,4; Morten I. Lau^1,2,3,4; Daniel Read^1,2,3,4

¹ Copenhagen Business School · ² University of Warwick · ³ Academy Of Finance · ⁴ Risk Engineering (Bulgaria)

Abstract

We design an experiment to test the hypothesis that, in violation of Bayes’ rule, some people respond more forcefully to the strength of information than to its weight. We provide incentives to motivate effort, use naturally occurring information, and control for risk attitude. We find that the strength–weight bias affects expectations but that its magnitude is significantly lower than originally reported. Controls for nonlinear utility further reduce the bias. Our results suggest that incentive compatibility and controls for risk attitude considerably affect inferences on errors in expectations.

DOI

10.1017/s0022109017000035

Volume

52

Issue

2

Pages

737-750

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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